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The Twelve Days of 2016

ne_221216-002A special festive review of 2016 from Richard Pickering, Head of UK Research & Insight.

12 percent plummet  Immediately in the aftermath of the referendum vote, the pound dropped 12% against the dollar, in a sharp correction. Currently sitting at c. $1.24, the pound has only been this weak against the dollar once in recorded history. That was in 1985 ($1.02), a time of US strength rather than UK weakness. However, the trend against the dollar has been steadily downwards over a much longer period of time (c.1% pa over 50 years), and the Brexit drop needs to be looked at in this context.  During the financial crisis sterling fell c.33% against the dollar. Less often quoted, sterling fell by 13% over ten less remarkable months in 2015.

11 judges judging  Eleven Supreme Court judges presided in December over what was billed as the most important constitutional matter for a generation. We await the outcome in January of their deliberations on the Government’s ability to invoke Article 50. The Supreme Court is a relatively modern construct, founded in 2009 to take over the judicial powers of the House of Lords – itself a matter of constitutional importance. Last year, Lord Justice Neuberger, referring to Lord Greene’s judgment in the landmark Wednesbury case said, ‘I have little doubt that he would be astonished by how much more ready judges are to interfere in administrative decisions than they were in his time’.  In his role as Supreme Court President, Neuberger is now finding out first hand.

10 Downing Street  One of the UK’s most famous properties welcomed a new owner this year, as David Cameron passed the keys to Theresa May. Winston Churchill once wrote that the houses on Downing Street were, ‘Shaky and lightly built by the profiteering contractor whose name they bear’. Its construction also offended the Countess of Lichfield who owned the adjoining property. Her father advised her: ‘I think that it is a very reasonable thing that other houses should not look into your house without your permission, and this note will be sufficient for Mr Surveyor to build up your wall as high as you please’. At 3,800 sq ft, the habitable section of this lightly built property is considered to be worth in the order of £12m. Not so shaky after all.

9…tieth Birthday  The Queen celebrated becoming a nonagerian in April (or officially June) this year – the first reigning monarch to do so. The Queen derives her income from the Sovereign Grant, typically measured as 15% of the profits of the Crown Estate. However, owing to a need to rewire Buckingham Palace, the Royal Trustees have elected to increase this to 25% for the duration of the 10-year project. The Queen isn’t the only pensioner feeling the pinch. A combination of new lows in interest rates, combined with increasingly longevity is putting pressure on pension pots, and in turn the UK’s retirement age.  More bad news for Prince Charles…

8th of November  We thought that the biggest political event this year was the result of the EU referendum; however following Donald Trump’s election on 8th November the jury is now out. It has been a year of surprises, and many have sought to join the dots. An element of dissatisfaction with the status quo is palpable. However, of equal note is the divisiveness of both votes, each of which were decided on a knife edge. It’s well documented that Clinton won the popular vote by just less than one percent, but lost on account of the Electoral College system. The Brexit vote was won by c. 4%. Despite anecdotal evidence to the contrary, a CNN/ComRes poll last week confirmed that if the referendum vote were to be rerun, the result would be the same. Of note, this was in spite of a view by many voting to Leave that they would be worse off. The decisions stir up strong emotions on both sides of the debate. Perhaps a measure of how we come out of this as a nation, will be how well we are able to now put these differences aside and look forward in the common interest.

7 funds a freezing  Seven open ended UK property funds suspended trading in the wake of the Brexit vote, to allow time to dispose of assets. In total, these funds had assets worth c.£18bn at the time of suspension. All have now reopened, having sold off approximately 10% of assets to meet redemption requests. Although newsworthy, these funds account for only 3% of commercial property investors in the UK. The most significant UK CRE owners include: Private companies / individuals £200bn (36%), unlisted funds £115bn (21%) and Institutions £90bn (16%). Although much less valuable, over 50% of rural land in the UK is owned by less than 1% of the UK population.

6 nations knotting  England secured its first win since 2011 in the RBS Six Nations tournament in March. The competition begs an interesting question about what is a ‘Nation’. The entity that voted to leave the EU is the United Kingdom of Great Britain and Northern Ireland – a sovereign country. The ‘Home Nations’ are England, Scotland, Wales and Northern Ireland. However, Northern Ireland, which is part of Ireland (an island in the British Isles) for Six Nations purposes, but not part of the Republic of Ireland (a separate country), is typically called ‘a Province’. Meanwhile, England, Scotland and Wales are all countries, within the larger country of the UK. England and Scotland are Kingdoms; Wales is not, but is part of the Kingdom of Great Britain. Scotland and Northern Ireland voted to Remain in the EU (a politico-economic union), whereas England and Wales (once part of the Kingdom of England) did not. Scotland also voted to Remain part of the UK, but its First Minister would prefer to be part of the EU, which might include France, but probably not Italy (once home of the Roman Empire, but not part of the Holy Roman Empire, which was in fact based in Germany) following their recent referendum. Clear?

5 Olympic rings  Despite warnings over the Zika virus, and a prediction of financial collapse, the 2016 Olympics in Rio kicked off in August to a fanfare, and finished with a glittering 27 gold medal haul for Team GB. With the massive financial burden placed on cities and governments by the Olympics (whilst the revenues from Olympic branding accrue to the IOC) is it a wonder why competition to host the games is so high. However, research by the Federal Reserve Bank of San Francisco suggests that there is in fact a large economic benefit associated with such ‘mega-events’, interestingly despite the fact that the new infrastructure is a net cost. The gain instead takes the form of positive impacts on trade (30% gains) and a signalling of greater openness / liberalisation, potentially leading to economic growth.

4 per cent inflation  NIESR has warned that inflation will approach 4% in the second half of next year – double the BoE’s target of 2%.  Inflation has been more or less stable in the UK over the past 20 years (RPI ave: 2.8%; standard deviation 1.3%), but compare this with the preceding 20 year block (ave. 7.0% S.D. 4.3%) where there was much greater volatility.  In 10-years, wages have increased by 38% in London, but house prices in the ‘W’ postcode have inflated by 133%. Meanwhile in Hull, wage inflation has risen by 18% over the same period, whereas house prices in Hull’s HU1 postcode have risen by… actually, nothing. Relative to the rest of the country, London gets wealthier, however, the big cost components of living in the capital are growing at a faster rate. Thank goodness for low interest rates…

3 French men  Former French Prime Minister Francois Fillon has taken the lead in the French Presidential race. Nicholas Sarkozy, and Alain Juppé have been left in his wake.  However it is a French woman that would really make the headlines if Marine Le Pen won the Presidential vote. This would have been the year of global female leaders, had Hillary Clinton have seen off the competition to join Merkel, May, Sturgeon and others. However, the number of ladies leading nations is still low (10 Heads of State and 9 Heads of Government). In part this mirrors the boardroom, where 9% of execs are female as are 24% of all directors. In a broader context, however, women hold relatively more power, with 32% of the Time magazine 100 Most Influential People of 2016 being women, including the likes of Ariana Grande, Priscilla Chan (of Facebook) and Christine Lagarde (bad example!).

2 clerics’ kids – Hopes for a pious settlement of the UK’s negotiation with the EU were raised as it transpired that the leaders of both the UK (Theresa May) and Germany (Angela Merkel) were the progeny of church ministers.  This is more common than one might expect – both Gordon Brown and Margaret Thatcher had fathers who were preachers.  In contrast, John Major is renowned as being the son of a music hall entertainer and trapeze artist.  In this he has something in common with Tony Blair, whose father, Leo – ‘a militant atheist’ was also the son of two travelling entertainers. Current Brazilian politician Francisco Silva was actually once a clown, and nineteenth century U.S. politician P.T. Barnum was a ringmaster. This perhaps brings fresh perspective to the phrase ‘political circus’.

And… a cut price Christmas Tree. B&Q has slashed the price of its Christmas trees, in some cases to just 10p compared with RRPs of £35, and wholesale prices of £7ish. The retailer is presumably working on the logic that most people will have done their Christmas tree shopping by now, with typical purchases occurring in the second week of December. I am one of the 9% of shoppers that will do all of his shopping on Christmas Eve this year, (although for obvious reasons Mrs P. has been led to believe otherwise). Surveys have shown that of those that fall into this group, 62% are likely to give a gift card, whereas 27% give cash. If I did either, I would likely become of one of those at risk on ‘D-day’ – the first Monday of the year – upon which there is 50% spike in petitions filing for divorce.

*The cost of the items in the original twelve days of Christmas song has been used by PNC bank to create a ‘Christmas Price Index’. The index started in 1984 at $12,623, and has risen by c. 3.3% pa to stand at $34,130 in 2015, reflecting an average 3.3% inflation. This year’s index is set to rise on account of a ‘lack of availability of Turtle Doves’, and ‘wage increases for the Drummers and Pipers’. 

Have a very Merry Christmas one and all.

New Europe email

Richard Pickering, Head of UK Research & Insight

Richard Pickering, Head of UK Research & Insight.

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