By Richard Pickering, Head of Futures Strategy
Ins and outs Data from the ONS reveals the largest annual drop in net migration to the UK for decades (75% of the reduction coming from the EU). The decrease from 336,000 pa to 230,000 reflects 80,000 fewer people arriving and 26,000 more leaving. The first signs of a ‘Brexodus’? Digging beneath the headline paints a slightly different picture. The reduction in arrivals is largely due to a drop in those seeking work here (130,000 down to 56,000), whereas those with firm job offers remained stable (at 187,000). The amount of high value Tier 1 visas granted was in fact up (7%) and skilled Tier 2 visas remained level. Those critical of Brexit have cited a brain drain not something that is necessarily borne out by these numbers. On the other hand, some Brexiteers have described this as ‘progress’, which when compared with the promise of net immigration down in the ‘tens of thousands’ still seems still a long way off.
Bigger than Brexit Brexit dominates the column inches, and with big figures like £50bn being discussed, this is perhaps understandable. However, there are bigger dice to roll. In my humble view, digital automation sits atop of this list; however, our domestic political positon also cannot be ignored. Morgan Stanley recently offered a view that a Corbyn government would pose a bigger threat to UK investors than Brexit. An unapologetic Jeremy replied: ‘When they say we’re a threat, they’re right. We’re a threat to a damaging and failed system that is rigged for the few.’ The question is partly aligned to digital automation. As Morgan Stanley noted, Labour with Corbyn at the helm would reprioritize our economy away from capital and towards labour, at a time where many industries are seeking the opposite to drive productivity. Nevertheless, Corbyn’s defiant message will resonate with large segments of the electorate, and let’s not forget, he remains favourite to become the next Prime Minister, (9/2).
Plan for the Future If you’re looking for a bit of light Christmas reading, then why not check out the 524 page London Plan? The comprehensive document offers little surprise so far as housing is concerned: more (65,000 units pa), denser, higher and around transport nodes – ‘removing outdated constraints’. The document also addresses the changing times in which we live, stating that, ‘buildings and spaces should be designed so that they can adapt to changing uses and demands now and in the future’ (referencing the circular economy). One such factor is the blend of a new breed of light industrial (makers, last mile) with resi, including the use of vertical stacking. Another is the near eradication of car parking in inner London and around transport hubs (only developments at PTAL 3 or less will be eligible). The choice between car ownership and living in central London may soon be a necessary tradeoff, pinning further hopes on autonomous pool cars and perhaps ironically, on Uber’s successful appeal.
Susceptible Services The relentless march towards the digitization of retail banking continues as RBS / Natwest announces 259 (25%) branch closures in the same week as Lloyds announced the closure of 49. Meanwhile, travel agent Thomas Cook has announced 50 store closures for similar reasons. When we talk about the threat of e-commerce to the high street, most people will naturally think of online ordering and deliveries; however, here we have two service industries that are more affected than those who sell products. Whilst you’re not likely to get an online haircut (never-say-never), any service that you can perform more efficiently either on your mobile or through a digital platform, has the potential to reduce its physical footprint. We’re seeing the challenge on the High Street, but B2B poses more significant challenges to the office market. Surely the design of office space will focus on those industries which are more resilient to digitization, where the need is for human interaction and creativity.
Bristol to Bradford New research from Zoopla highlights a growing disparity between asking and selling prices for resi across the country. The average disparity ranges from 1.9% in Bristol to 6.3% in Bradford. What does the increase tell us? It could be a sign of a sliding housing market, with offer prices not being marked to market. On the other hand, it could be about vendor aspirations to realise profits that don’t exist. It could also be about price competition among estate agents, with pressure to secure listings pushing up offer prices quoted to clients. For typical homeowners, house sales represent large one-off deals, so there is no question of dropping price to increase volumes. Setting a lower sale price will likely affect the time to sell, but for most vendors the time cost of money is low, as so longer trades at high prices are typically preferred. Finally, there is what is described in Prospect Theory as ‘reference dependence’; where buyers will appraise the success of their negotiation relative to the reference price, rather than the true value. More simply put, if you don’t ask, you don’t get.
Patently obvious A couple of recently released patents illustrate business model innovation both on and offline. Online, Amazon have been awarded a patent whereby ‘a customer can select to watch a video advertisement on a detail page for an item, and the displayed price for the item will be shown to decrease as the customer continues to watch the video’. This opens doors to paid advertising, and price discounting models. Meanwhile offline, Walmart is moving the high street to the consumer, by proposing a ‘retail-access portal’ built into people’s homes. The portal would be restocked automatically by a drone using demand algorithms, and uses sensors to detect (and then charge) when items are taken out by the occupier. To be honest, I’m not sure where this would fit in my tiny inner-urban flat, but for suburban America it could be a good way to prevent running out of the basics.
Markle & Sparkle News that the most eagerly anticipated event of next year will not, it seems, happen after all, has been met with disappointment across the country. Yes, Theresa May has intimated that there will be no bank holiday to coincide with Harry and Meghan’s nuptials. Surely that’s the whole point? Markle’s ‘Suits’ alter ego, paralegal Rachel Zane, suffers from test anxiety, initially failing to get into law school. However, it is now the US-born princess-to-be that will face a series of tests as she applies for a UK passport. Having already proven herself capable in interviews of discerning crisps from chips, and trousers from pants, the language test should prove a breeze. One might argue that she also has a significant headstart on the ‘Life in the UK’ test, wherein she will be asked challenging questions such as ‘Who is married to the Queen?’. With these tests behind her, however, proving that she will be not reliant on public funding is open to more philosophical viewpoints.