Commercial Awareness Update 8th February 2019

1) BREXIT: ECONOMIC INSTABILITY

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Britain’s services sector slowed to the brink of stagnation last month. Markit’s monthly service sector PMI dropped to just 50.1%, showing barely any growth at all.

Services bosses reported that they’ve been forced to cut headcount, after suffering weakening new business. Many blamed Brexit uncertainty for spooking clients.

Moreover, UK car sales have fallen by 1.6% in January - although electric vehicle sales rose.

Analysis

Economists fear that the UK could struggle to post any meaningful growth this quarter, given that construction firms and manufacturers also found January tough.

The picture isn’t any better overseas. The eurozone private sector is growing at the slowest rate since mid-2013, with France and Italy particularly weak. Growth in Ireland also slowed, while even Australia is feeling the chill.

Despite this gloom, European stock markets have risen steadily as traders put their recent worries behind them.

As any legitimate economist worth their weight would argue, the short and long term ramifications of the UK’s withdrawal from the EU poses great threats to the UK’s domestic policy and its economy. It is now in the hands of the UK government to come to an agreement in order to avoid a ‘No-Deal Brexit’ and minimise the great negative impact of Brexit.

2) US-CHINA TRADE DEAL

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The US and China don't even have a trade deal draft yet as deadline approaches

The Wall Street Journal says the two sides have not even drafted an accord specifying the matters they agree and disagree on.

The report comes just a day after White House economic advisor Larry Kudlow said there is a "pretty sizable distance to go" before China and the U.S. reach a deal.

President Donald Trump also says that a meeting with Chinese President Xi Jinping will not take place before the crucial March deadline.

Analysis

The report comes just a day after White House economic advisor Larry Kudlow said there is a "pretty sizable distance to go" before China and the U.S. reach a deal. Kudlow also indicated, however, that President Donald Trump is "optimistic with respect to a potential trade deal."

After that, Trump said that a meeting with Chinese President Xi Jinping will not take place before the crucial March deadline. Trump's remarks came hours after CNBC reported the meeting was "highly unlikely," citing a senior White House official.

U.S. stocks fell sharply on Thursday as it became clear the meeting will not take place before the deadline. The Dow Jones Industrial Average lost 220 points, while the S&P 500 dropped 0.9 percent.

3) RBS LAWSUIT

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Newham council is suing Royal Bank of Scotland over the terms of about £150m in complex bank loans, making it the latest UK bank to face a lawsuit over lending terms that critics say piled undue pressure on local services.

The east London authority filed a high court claim against RBS earlier this week, the Guardian can report. The claim centres on terms of its lender option borrower option loans, known as Lobos, which proved popular with local councils in the early 2000s. One of the main attractions were the Lobos’ teaser interest rates that kept costs low in the short term but later proved expensive as austerity and spending cuts took hold.

Analysis

The loans gave banks the power to raise interest rates at certain points over their lifetime, accounting for the “lender option” of the loan agreement.

Although borrowers had the option of rejecting those terms, it would trigger a clause forcing them to immediately repay the loan in full.

The seven councils say the bank knew customers would rely on Libor rates, which Barclays was accused of lowballing, when deciding whether to enter into contracts. Barclays then has the power to raise interest rates over the lifetime of the Lobo loans as part of the central terms.

Usama Kubo,

Commercial Awareness Director