Globalisation and inequality Mark Carney this week made a striking speech on the impact of globalisation on UK workers. Pointing to “a growing disparity between older homeowners and younger renter”’, the BoE Governor called for “a move towards more inclusive growth where everyone has a stake in globalisation”’. Elsewhere in his speech, he laid blame for “stateless companies”, “low wages”, and “striking inequality”’ at the door of globalisation, with “uneven gains from trade and technology” exacerbating the impact. This feels like a significant statement for someone in a position of financial authority, echoing similar sentiment coming from Donald Trump on the impact of globalisation on US workers. Whilst Carney doesn’t advocate a more inward approach, the call for greater equity in the distribution of wealth feels timely, as inequality continues to grow in the West.
Knocks and knock-ons Minutes of a meeting of the BoE’s Financial Policy Committee, highlight the risks still facing the UK commercial real estate sector, stating that some segments of the market, “continued to appear stretched”. It is the potential knock-on of any pricing contraction which is of concern to the BoE. Whilst noting that UK banks’ CRE lending had halved since 2008, the minutes state that 75% of bank lending to SMEs in 2015 used CRE as collateral. Therefore if pricing drops, the ability of these businesses to secure finance would also fall, tightening credit conditions in the wider economy. Meanwhile, the FPC opted to retain a measure limiting the volume of residential mortgages extended over 4.5x income, stating that an increase to 5x income would only increase the value of lending by <1%.
Crude impacts Crude oil pricing continues to rise following OPEC’s commitment to reduce output in June. Pricing now sits at over $50 / barrel, meaning that an investment in stock made a year ago would have now seen a 48% return. GDP is inversely correlated to oil price movements, so this is generally not welcome news for the UK economy (other than say for the city of Aberdeen, or BP (25% share price gain this year)). Moving downstream, this means more expensive transportation costs (which typically comprise up to 10% of a retailers’ cost base) and a further contribution to inflation.
Bubbles and gin At first blush, it seems that Brexit has taken the fizz out of the UK champagne market, as European sales fell 21% y-o-y, according to the Association Viticole Champenoise. However, with the property industry party-season in full swing, fears of a dry Christmas are thankfully misplaced. Prosecco is officially the new champagne, with UK sales rising 80% over 5 years, and the word ‘prosecco’ now receiving more web-searches in the UK than in Italy. Similarly UK gin sales rose 19% y-o-y, with exports up 550% for the decade. Meanwhile, data from Innsbruck University confirms that those who like the taste of gin are empirically more disposed to “Machiavellianism, psychopathy, narcissism and everyday sadism”. This might have chimed with bon viveur, Noel Coward, who famously said: “A perfect Martini should be made by filling a glass with gin, then waving it in the general direction of Italy”. Bottoms up!