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Inflation is Falling, But Outlook Still Looks Bleak
You can look at this week’s inflation figures from either a glass half-full or half-empty perspective. Those of a more positive disposition might be pleased to see inflation has fallen sharply, with CPI standing at 8.7% for April – the first time it has dropped below 10% since August last year. The pessimists among us, however, will point out this fall was lower than expected, food costs are still 19.1% higher than a year ago, and core inflation – which strips out more volatile food and energy costs – has accelerated to 6.2% in April, is the highest it has been since March 1992. The question is what view the Bank of England takes on this complex picture, given this week it admitted it had made “errors” in its forecasting. Oh, and according to Sky News, Jeremy Hunt has said he is "comfortable" with an economic recession if it takes the wind out of inflation’s sails. So it’s come to that. It’s not easy trying to please voters and stay on top of the economics at the same time.
Rishi Sunak is Keeping up With The Joneses on AI
An image purporting to show an explosion near the Pentagon caused jitters on the stock market earlier this week when it was widely shared on news and investment feeds – including on a blue-tick Twitter account falsely purporting to be connected to Bloomberg. The result was a brief sell-off on US stock markets, before officials confirmed no such incident had actually occurred. The actual cause of the drama, they said, was an artificial intelligence-generated forgery. There were signs of trickery, but the whole thing highlights just how easily AI can be used to cause real-world trouble. As Rishi Sunak this week met stakeholders to discuss AI safety, senior Labour MP and business committee chair Darren Jones urged the government to set up a new intergovernmental task force on the topic.
The Government is Struggling to Profit From NatWest
Don’t tell Sid, but this week we learned the government sold a £1.26 billion stake in NatWest at a loss. This latest disposal means taxpayers now own less than 40% of the troubled banking institution, and the plan is for it to be fully privatised by 2026. If this target is met – and it is a big "if" – the government will have been a part-owner of one of the UK’s big four banks for almost 20 years, having bailed it out in 2008 at the height of the financial crash. The government managed to offload its stake in Lloyds in 2017, so why is the re-privatisation of NatWest taking so long? This is mainly due to the Treasury wanting to minimise taxpayer losses on the sale, although this is proving difficult with NatWest’s share price sitting consistently below the bailout price. This week, for example, the government agreed to sell 469m shares at 268.4p each – around half the 500p paid per share in 2008. The government admits the 2026 deadline will depend on financial markets, and whether a final sale represents value for money for taxpayers.
The Growth Growth Growth Debate Lives On
Not everyone is happy with plans to compel UK pension funds to invest in UK start-ups. For a number of years politicians have been eyeing the billions now invested in defined contribution (DC) pension funds, which have grown substantially thanks to auto-enrolment. The government would like some of his money invested into the UK economy. These plans have been badged in various ways. At one point they were earmarked for the "levelling up" agenda. At another they were the bedrock of the green transition. Today, it seems the money is needed to boost growth start-ups after Brexit.
One proposal is that each pension schemes might pay 5% of its assets into a "future growth fund". But there’s a reason growthy start-ups are known as "unicorns" – most fail. What’s more, start-ups are no guarantee to kickstarting returns, as many Woodford investors will testify. This week, Aviva chief executive Amanda Blanc was one of the high-profile names throwing cold water on the idea, on the grounds that she didn’t like the idea of compulsion. Could we make a go of it like the Australians? Possibly, but don’t forget that the Australian DC market is more mature. And the country isn’t hamstrung by uncertainty after Brexit.
Shell’s AGM Generated More Heat Than Light
Oil company AGMs are getting to be increasingly fractious and rowdy affairs. Climate activists at Shell’s annual meeting for shareholders weren’t simply waving placards or gluing themselves to fixtures and fittings this week, they chose to disrupt proceeding by forming a flashmob singing "Go to hell, Shell" to the tune of "Hit the Road, Jack" by Percy Mayfield. While this managed to delay proceedings for around an hour, the protestors didn’t succeed in their ultimate aim. 80% of Shell’s shareholders rejected the climate resolution put forward by campaign group Follow This. Still, one wonders what other tunes might make the protest playlist: "Wind of Change" by Scorpions perhaps, "The Oil Slick" by Frightened Rabbit, or, simply for singalong value, Tom Jones' "The Green, Green Grass of Home".
M&S is Back in Fashion
High street stalwart Marks & Spencer turned on the style for shareholders this week with profits ahead of expectations. It certainly seems to have bucked the trend of recent years, which has seen many high street retailers struggle amid competition from online outfits, and, more recently, the challenge of higher inflation and a cost-of-living squeeze. While M&S said higher input costs were still affecting margins across its business, revenues had risen. Strikingly, it isn’t just its food business that is doing well, but also its clothing and home divisions, which have disappointed in recent years. But these were now the main driver of its profits, led by M&S’s "Remarkable" range of value clothing. Could this more upbeat trading statement be setting a trend other high street retailers will follow?
Ryanair is Flying High
M&S isn’t the only company enjoying a turnaround in fortunes this week. Ryanair has posted its first profit since the start of pandemic. The budget airline has benefited from rising passenger numbers and rising fares last year, as popular holiday destinations relaxed restrictions on travel. It may also be one of the companies picking up business in a cost-of-living squeeze. Research has indicated that while consumers are cutting back on spending, they seem reluctant to give up their holidays entirely. This has led to more people looking for cheaper airfares and lower-cost city breaks — all of which should continue to benefit the company and its outspoken chief executive.
Meta’s Been Hit With a Mega Fine
Facebook owner Meta has received a mega fine for breaching EU data privacy rules this week. Irish regulators slapped it with a €1.2 billion (around £1 billion) penalty for mishandling "massive volumes" of personal data from its European customers by transferring it to its US servers. Bizarrely, this issue stems from revelations made by the whistleblower Edward Snowden, now a Russian citizen, who leaked highly-classified information and claimed US intelligence agencies can access Facebook data — which would include people in the EU, who are supposed to be protected by stronger privacy laws. Meta now has six months to rectify this problem and stop EU data being stored on US servers — although it will be appealing the decision, which only applies to its Facebook data. WhatsApp and Instagram are unaffected.
Elon Musk is Getting in Our Heads
Would you want Elon Musk experimenting with your brain? If you hadn’t heard already, the Tesla chief executive and Twitter boss also owns a brain chip company called Neuralink. This week it received approval from the US Food and Drugs Administration to conduct tests on humans, after previous applications were turned down on safety grounds. Neuralink wants to use microchips to treat paralysis and blindness, and help disabled people use computers and mobile technology. The chips, which have been tested in monkeys, are designed to interpret brain signals and transmit this information to computers via Bluetooth. The news comes in the same week Swiss researchers revealed their work on brain implants enabled a paralysed man to walk by wirelessly transmitting his thoughts to his legs and feet — effectively over-riding the damaged nerves in his spine.
India is Embarking on a 'Mini' Demonetisation
India is withdrawing the 2,000-rupee note from circulation (worth about £19) in a process described by some as a "mini" demonetisation. The Indian government naturally denies this, claiming instead the move is part of plans to tackle corruption and restrict cashflow to black market activity. Its actions are not as draconian as 2016, when the government gave just four hours’ notice that all 500 and 1,000 rupee notes would no longer be valid, effectively taking 86% of India’s cash out of circulation, causing widespread panic, economic turmoil and massive queues at banks. This time the government says people have until the end of September to exchange their notes, and they will remain legal tender afterwards, although no new 2,000 rupees notes are now being issued. This restriction of cash may encourage more people to move to digital payment options. India — on track to overtake China to be the world’s most populous country — has already embraced rapid digitalisation, with particular expertise in cloud computing, as this Morningstar article explores.
WhatsApp Wants to Correct the Record
WhatsApp users will soon be able to edit texts, at least for fifteen minutes after hitting send. The announcement generated a surprising amount of coverage, given such functionality has been available on Facebook (also owned by Meta) for 10 years now, as well as other messaging services such as Telegram and Signal. All in all it is good news for fat-fingered typists, and anyone who has ever found themselves posting to the wrong WhatsApp group. For journalists trying to hold those in power to account, however, it is going to cause a lot of additional paperwork, particularly if “edits” are not clearly archived. Just imagine former prime minister Boris Johnson handing over his WhatsApp messages to the Covid-19 inquiry…
