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Is the UK’s Future in the Far East?

Archive for June, 2021

Is the UK’s Future in the Far East?

Wednesday, June 23rd, 2021

In April it was announced that the UK and Australia had agreed the “vast majority” of a trade deal. Although talks between International Trade Secretary Liz Truss and her Australian counterpart broke up without a deal, both countries were “confident that the remaining issues will be resolved.” The final deal is expected to be completed by mid-summer

The numbers involved in the deal with Australia are relatively small – it is estimated that it will add perhaps £500m to UK GDP over the long term – but perhaps the geographical significance of the deal is more important than the numbers. 

It was widely reported that the deal with Australia could pave the way for the UK to join the CPTPP, a trading agreement between 11 Pacific Rim countries signed in 2018. 

The initials stand for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The 11 countries involved are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Notably, it does not include China, but between them the 11 countries have a population of 500m and – according to an article on the BBC – generate 13% of the world’s income. (In comparison the population of the European Union is currently put at a little under 450m.)

The CPTPP gives member countries greater access to each other’s markets, with a pledge to eliminate or reduce 95% of import charges and tariffs. Manufacturers who source products from member countries can also qualify for preferential treatment. 

In return countries are obliged to cooperate on regulations such as food standards, but unlike the EU the CPTPP is not a single market or a customs union, so countries are not required to have identical regulations and standards. 

Clients who know their Geography will very quickly realise that the UK is nowhere near the Pacific Rim. So will we be allowed to join? And why should we want to join? 

The answer to the first question is almost certainly “yes.” Speaking in April Liz Truss said she hoped the UK would be a member “by this time next year.”

Why would the UK want to join? The Eurozone economy contracted by 0.6% in the first three months of this year, officially putting it back in recession. By contrast the Pacific Rim is one of the fastest-growing parts of the world economy. “We need more access to these markets,” said Liz Truss. “That’s where the future lies for British business, whether it is the whisky industry, the car industry, financial services or digital industries.” 

The Government is currently setting up a new unit to explore Brexit opportunities, with the emphasis on “shedding EU regulations.” Whether you are in favour of this will probably depend on your political viewpoint, but it would certainly sit comfortably with the UK being a member of the CPTPP. The initials may be unfamiliar now: they are unlikely to remain that way especially if – as he has hinted – President Biden also commits the US to joining.

Who will Pay the Bill for Covid-19?

Wednesday, June 23rd, 2021

Government borrowing is at its highest level since the Second World War. According to the Office for National Statistics it reached £303.1bn in the year to March – nearly £250bn higher than in the previous year. Borrowing in March was £28bn – the latest month to set an unwelcome record. Borrowing in the year to March was 14.5% of Gross Domestic Product: at the end of the War it was 15.2%. 

Many pundits are expecting a spending boom: depending on which article you read, we “accidentally saved” between £100bn and £125bn during lockdown. Nationwide, for example, have reported that customers’ savings “more than doubled” to £10.6bn during the pandemic. 

With the lockdowns now easing, surely this money will be spent, kick-starting the economy and fulfilling various predictions of the fastest growth since the Second World War? 

Perhaps not: a recent survey suggested that the army of accidental savers lockdown created has plans to stay prudent. As the BBC report put it, consumers are likely to “play it safe” as the UK emerges from lockdown. Neither can the Chancellor expect a windfall from Corporation Tax: with the pandemic having hit the profits of many, many companies’ tax receipts from business are certain to be reduced. 

But at some point the Chancellor has to start paying the money back. So just who will pay the bill for Covid? And how long will they be paying the bill for? 

It hardly sounds like a prudent way to run a country but perhaps the UK will never pay back the debt. In the last 100 years the UK has never not been in debt: in the last financial year (before Covid struck) the Government was planning to borrow £160bn – of which £100bn was to pay back old debt. 

Some of you – brought up with a strict understanding that debt must be repaid – will recoil in horror, but Government borrowing is not like a credit card: the debt (at least according to the experts) does not need to be paid down as quickly as possible. 

Borrowing is cheap at the moment, with interest rates at historic lows – so low that last year the Government issued negative-yield bonds. Effectively, institutions that bought the bonds were paying the Government to look after their money. 

What the Chancellor really needs is a healthy dose of inflation. In years gone by, when annual inflation was in double digits, that very quickly reduced the “real” amount of Government debt. But even though inflation increased to 1.5% in April, a sustained period of high inflation looks very unlikely. 

Your grandmother would not approve, but for now it looks like the Chancellor’s emphasis will be on servicing the debt, rather than paying it back – and on keeping his fingers crossed the predicted rebound in the economy really does happen, finally starting to swell his tax coffers.

June Market Commentary

Wednesday, June 2nd, 2021


In some ways, May was a relatively quiet month. Although, it did bring us the marriage of Prime Minister Boris Johnson, the first PM to marry in office since Robert Jenkinson, 2nd Earl of Liverpool, in 1822. 

Having eaten a slice of wedding cake and gone straight back to the office, Boris Johnson will be relatively pleased with what he saw in May. There were plenty of optimistic forecasts for the UK economy and the stock market ended the month above the 7,000 mark. 

In the wider world, both China’s exports and imports surged in April as the first trade talks were held with the new Biden administration. The jobs figures in the US were disappointing, despite a recovery in the economy. However, Amazon, in the news as always, seems to be trying to tackle the jobs problem on its own. 

It was a good month for the stock markets we cover in the Bulletin, with most of the major markets making gains in the month. Those that didn’t make gains at least managed to hold their own. 

It was also a month in which a herd of cows brought British Rail to a standstill, and the UK was rocked by news of a devastating crisis for ice cream lovers. As always, let us look at all the details. 


The month started in the UK with our glass not so much half full or half empty, but having never been filled in the first place. Even as the lockdown restrictions were eased, thousands of businesses in the hospitality sector were unable to reopen, simply because they could not find any staff. It was a story echoed in other countries, thousands of staff have left the hospitality sector in the past year, leaving many pubs and restaurants desperate for someone to pull pints and serve food. 

More generally, UK job vacancies hit their highest level since the start of the pandemic, with 675,000 vacancies reported in the February to April quarter as the unemployment rate fell slightly to 4.8%. 

Sadly it looks like the ranks of the unemployed could soon be swelled by more retail staff, with many stores reported to be facing closure over unpaid rent. A moratorium was agreed at the start of the pandemic which stops landlords taking legal action over unpaid rent. That ends on June 30th, with two thirds of retailers have apparently been told that they will be subject to legal action. With shopper numbers reportedly still down 30% on pre-pandemic levels, good news for the high street was hard to find. 

Perhaps symbolically, the last Debenhams closed its doors in May. Equally symbolically, Amazon announced plans to take on 10,000 more staff. 

Away from the high street the news was mostly good for the UK, especially at the end of the month. The Organisation for Economic Co-operation and Development (OECD) predicted that the UK would grow at its fastest rate since the Second World War this year and next year. The OECD is forecasting growth of 7.2% this year and 5.5% in 2022, in contrast to a 9.8% contraction last year. 

Business optimism was reported to be at a five year high, with the CBI saying that optimism over the future of the service sector increased at the fastest pace on record in the three months to May. 

Car production, a tale of unremitting gloom last year, was also reported to have bounced back to near normal levels, with Nissan apparently in talks to build a huge electric car battery plant in the UK. The FT reported that Nissan wants the UK to be “its main hub outside Japan.” There were even rumours of a Tesla factory, following CEO Elon Musk’s two day visit to the UK. 

House prices increased by 10.2% in the year to March, the highest annual growth for 14 years according to official figures. With Nationwide reporting that ‘accidental savings’ had seen an extra £10.6bn added to them during the pandemic, it looks like we might be spending that money moving or improving. One slightly negative note was that inflation more than doubled to 1.5% in April. 

The Government announced the setting up of a “Brexit Opportunities” unit, and looks set to offer Australia a tariff free deal, despite the concerns of farmers. Trade and investment deals worth £1bn with India were announced which, according to our newlywed PM, would “create 6,000 jobs.” 

There was, therefore, plenty of positive news in May. The FTSE-100 index of leading shares took it all rather cautiously, gaining just 1% in the month to close at 7,023. The pound had a good month against the dollar, gaining 3% to finish May at $1.4233. 


We commented last month on the rise of the Green Party in Germany. With the elections due in late September they continue to lead in the opinion polls, with the very real possibility that the Green candidate, 40 year old Annalena Baerbock, could take over from Angela Merkel as Chancellor. 

Should she win the election, one thing she, along with other EU leaders, will undoubtedly turn her attention to is the amount of tax paid by companies like Amazon. 

Amazon reportedly did not pay any corporation tax in Europe last year. The firm, which has its European headquarters in Luxembourg, recorded a sales income of €44bn (£38bn) last year, but did not pay any tax having apparently made a loss of €1.2bn (£1.03bn). Amazon’s European unit was also granted €56m (£48m) in tax credits and has €2.7bn (£2.3bn) of carried forward losses ready to be used against any future profits. 

A Green government in Germany would be set to commit to significant levels of spending, but it doesn’t look like Amazon will be contributing.

You may have heard about the shortage of specialised computer chips which is hampering car makers around the world. That hit home in May as Audi was forced to “idle” 10,000 staff for the second time this year due to the ongoing shortage. It has been suggested that the shortage of semiconductors will cost carmakers around the world more than $100bn (£70bn) this year. 

There was some good news as Greece announced that it was “putting the lockdown behind us” and opened up its tavernas and beaches to tourists. Not that the news boosted the Athens stock market, which was down 2% in May at 895. 

Fortunately the major European stock markets did rather better. Germany’s DAX index was up 2% to close the month at 15,421. The French market went one further, rising 3% to finish May at 6,447. 


It was snakes and ladders at the beginning of the month in the US. All the expectations were that the payroll data would see another 1 million jobs added as the US recovered from the pandemic and the Dow Jones index climbed to a record high. Until it went swiftly down the snake as the jobless figures came in well below expectations. Just 266,000 jobs were added in April, a month which saw the Government send $1,400 (£1,000) cheques to most Americans, as the unemployment rate edged up to 6.1% with 9.8 million people remaining unemployed. 

Worse followed when the Colonial Pipeline, which carries 45% of the East Coast’s supply of diesel, petrol and jet fuel, was put out of action by a ransomware attack. The hackers, an organisation called DarkSide, cheerfully acknowledged the attack and apologised to the public. “Our goal is to make money,” they said, “Not creating problems for society.” They appear to have succeeded in their goals, with reports emerging a few days later that the pipeline had paid a ransom of $5m (£3.55m) to restore order. 

Back to Amazon, another organisation that has met a few goals, even if it hasn’t paid much tax, announced that it was set to hire a further 75,000 people in the US and Canada and then went one step further by agreeing to buy the historic MGM Studios for $8.45bn (£6bn). This will give Amazon’s streaming service access to a huge back catalogue, including all the James Bond movies and The Handmaid’s Tale series. This came in the same month that AT&T and Discovery announced plans to create another “streaming giant.”

The month ended with President Biden setting out spending plans for the trifling sum of $6tn (£4.23tn) which were not surprisingly criticised by Republicans as “insanely expensive.” The plans, which would mean steep tax rises for wealthier Americans, would include huge new social programmes and significant investment in the fight against climate change. 

We have, in the past, brought you news of many tech startups in the US that have excessive valuations (at least by conventional measures). May perhaps brought the biggest example yet, with news that electric truck startup Rivian is planning a stock market debut that will see it valued at $70bn (£49.3bn). How many trucks have so far rolled off Rivian’s production line? That would be none.

The Dow Jones index, perhaps remembering those conventional measures, was up just 2% in the month to close May at 34,529. The more broadly based S&P 500 index was up 1% at 4,204. 

Far East 

May was an unusually quiet month for news in the Far East section of the Bulletin. As regular readers know, there are months when there are as many stories in this section as in, say, the UK or US sections. 

The month started with good news for Chinese exports. As the US economy began to recover, and production in India stalled due to the pandemic, Chinese exports surged in April, up 32% from the previous year (admittedly during the Covid crisis) to almost $264bn (£186bn). April also saw imports rise at their fastest rate in more than a decade, up 43% on the previous year. 

The month ended with trade negotiators from the US and China holding “candid, pragmatic” talks to discuss the trade relationship between the two countries. Where did they meet? It was a virtual meeting, obviously. It’s not just parish councils that use Zoom.

Long working hours have been much in the news lately, and in May a study was released by the World Health Organisation, suggesting that long working hours are killing “hundreds of thousands”  of people a year. The WHO put the figure at 745,000 with anyone working more than 55 hours a week having a significantly increased risk of both strokes and heart disease. The report found that people living in South East Asia and the Western Pacific Region were the most affected. Some readers will remember a story from two years ago when Alibaba founder Jack Ma called for China to return to “996.” Working from 9am to 9pm six days a week, a 72 hour working week. 

May, otherwise, was a story of the Chinese government cracking down. Shares in food delivery giant Meituan fell sharply after its billionaire CEO Wang Xing posted a thousand year old poem online. The Book Burning Pit was widely seen as a criticism of Xi Jinping and his government, with the company one of many under investigation, like Alibaba last month, for abusing a dominant position in a particular market. 

May was a very bad month for the cryptocurrency Bitcoin, which was down 37% for the month as a whole. It fell 10% after carmaker Tesla said it would no longer accept it as payment, a position which worsened significantly when the Chinese government banned banks and payment firms from providing services related to cryptocurrency transactions. It also warned investors against speculative trading in cryptocurrencies. 

Fortunately there were no 37% falls on Far Eastern stock markets during the month. China led the way, the Shanghai Composite index rising 5% in the month to close at 3,615. The markets in both Hong Kong and South Korea rose 2%, to end May at 29,144 and 3,204 respectively. Japan’s Nikkei Down index was unchanged in percentage terms, closing the month at 28,860. 

Emerging Markets 

April was, of course, dominated by the surge in Covid cases in India. Mercifully the rate of infection appeared to be slowing in May, although that did not stop calls from opposition parties for a full national lockdown, something Prime Minister Nerendra Modi resisted due to the economic impact. 

We have written previously about tensions between India and China, and the misgivings many countries have had about Chinese companies being involved in their 5G networks. It was therefore no surprise to see India’s telecoms ministry leave Chinese companies Huawei and ZTE out of its 5G network trials. The ministry granted permission to a dozen firms, but the Chinese companies were notable absentees. 

All the three major stock markets we cover in this section had good months in May. Perhaps in response to Nerendra Modi’s controversial decision the Indian market rose 6% to close at 51,937. The Brazilian market was up by the same amount to end the month at 126,216 while the Russian market did only slightly less well, finishing the month up 5% at 3,722. 

And finally…

May wasn’t a vintage month for the “And finally…” section of the commentary, although a herd of cows in Nuneaton gave it their best shot. Trains were unable to moo-ve (sorry) through the station as the herd of cows trotted through just before 11am one day. Sadly we have no information on which platform they arrived at or, indeed, whether they were on time. Network Rail duly halted trains while the cattle sauntered out of the station, and confirmed that they had spoken to a local farmer…

Regular readers will know of a rather larger traffic jam that we reported on recently. The giant container ship Ever Given blocked the Suez Canal and was, along with the pandemic, duly blamed for the UK facing shortages of pet food pouches and garden gnomes among other essentials. 

Now we bring you news of a real essential. The UK and Ireland are apparently facing a shortage of Cadbury’s chocolate flakes this summer, due to a surge in demand. This would mean a summer without a ‘99 for ice cream lovers. Sundry chocolate bars were suggested as alternatives on social media, but surely there are some traditions that simply cannot be tampered with? 

One tried and trusted tradition is, of course, a gentleman getting down on one knee and proposing. Now one woman in the Punjab has taken Prince Harry to court for failing to do that, demanding a warrant for his immediate arrest. The court was not sympathetic, gently telling the plaintiff that she may have been the victim of an online scam. “There is every possibility that Prince Harry is in a cyber-café somewhere in the Punjab,” said the judge. Let’s hope Meghan doesn’t find out!