4 June 2015
Week in Brief:BUSINESS AND THE CITY
FLYING NORTH: While the debate goes on as to how and where to expand airport capacity in the south-east, with Heathrow and Gatwick airports both running major advertising and lobbying campaigns to attract government support for an additional runway, Manchester Airport is just quietly getting on with expanding its operations. The airport is located to the south west of Manchester but over the last twenty years has become effectively the airport for the north, eclipsing former competitors at Leeds and Liverpool and even the wonderfully named Robin Hood Airport (Doncaster) which, in spite of long runaways and easy access, has failed to rob Manchester of its growth trajectory.
Manchester is owned by a consortium of local authorities led by Manchester City Council, who have invested heavily into it and have also successfully pushed through a strong long-term strategy of improving both local and long distance access – for instance, trains from Scarborough, on the Yorkshire coast, now run into Manchester Airport. George Osborne’s great scheme for better northern connectivity, the so called “Northern Powerhouse”, will further increase the airport’s importance as a gateway to the northern conurbations and will welcome the hoped for surge in business arrivals.
Now the airport has announced a £1bn expansion programme to enlarge two of the three terminals and increase capacity in security and luggage handling. Also improved will be facilities aimed at the better heeled customer, particularly the business traveller, the airport’s fastest growing segment. Unlike Heathrow, Manchester Airport has adequate runway capacity, having built a second runway some years ago; it is passenger handling that is becoming the pinch point. The works will increase passenger capacity to 45 million a year, double the present throughput.
UK MANUFACTURING: The monthly Purchasing Managers Index is one of the most closely watched economic indicators, a reliable guide to the underlying general health of the economy. Although manufacturing only accounts for around 11% of British economic output, manufacturing is a major employer (especially in lower waged jobs) and is seen as a proxy for the rest of the UK economy. The index looks at buyer’s expectations, so in effect works as a forward indicator rather than a backwards glance. In May the index rose, but only by 0.2%, contrary to expectations of a rise of perhaps 0.75. The index has risen for 27 consecutive months, so some easing off may not be totally unexpected, but the market was hoping for a post-election bounce coming through quickly.
It seems likely that manufacturing is suffering some of the side effects of its own success. The perceived growing strength of the economy has driven sterling up, thus making exports more expensive and imports cheaper. This is bad news for manufacturers, having to work that much harder to obtain new export orders whilst seeing home markets under attack from cheaper exports. Manufacturing in Britain is something of an unsung success, with increasingly high tech “value-added” products, especially in car and aircraft components, technology, bio-technology, and oil industry machinery.
CENTRE PARCS CHANGES HANDS: One of Britain’s most popular holiday destinations, Centre Parcs, has been sold. The company operates five large self contained quasi rural holiday destinations, including the original in Thetford Forest and others at Longleat House in Wiltshire and Woburn in Bedfordshire. They provide comfortable self-catering accommodation and a multitude of activities, focussed on middle income families. Founded by a Dutch holiday business, Centre Parcs has changed hands several times, the current vendors being Blackstone, the major US asset management business who bought the business in 2006. Blackstone have invested heavily, renewing and improving facilities and tightening up management. This looked a bold approach during the recession but seems to have paid off. Rumour is that Blackstone has doubled its money and has had a pretty good running return on an annual basis.
The buyer is another asset management business, Brookfield Property Group, a large long-established Canadian group which is backed by a range of Canadian institutions and investors. Brookfield is best known in the UK as a major purchaser of office investments and it also has a large office development programme focussed on the City of London, where it owns 99 Bishopsgate and is building the adjacent 100 Bishopsgate and the nearby London Wall Place. Recently, in what was regarded in the City as an audacious step, it acquired, with the Qatar Investment Authority, the Canary Wharf Estate – the City’s great rival in the former London Docklands.
Brookfield sees managed leisure as a good potential growth area, especially in a recovering economy and with middle class incomes starting to grow again. It is also a good diversification from the prime office blocks it is heavily exposed to – though there may be limited cross marketing opportunities.
INTERNATIONAL LAW: Further evidence of London’s importance in the world economy: YangTze Law, a Chinese domiciled law firm which specialises in international business for Chinese clients has established a London office to service its clients doing business in the UK. The new office is in the centre of London’s traditional legal district, in Chancery Lane, and YangTze has formed an alliance with a London firm, Michelmores, who will provide back office and financial management services and also help the new firm negotiate itself and its clients through Britain’s complex regulatory system.
There are several firms which have already identified this market opportunity, most notably King and Wood Mallesons, a large Hong Kong form which acquired the City of London firm of S J Berwin two years ago. However YangTze is the first Chinese mainline firm to set up directly in the UK.
UPSTANDING STAFF: Research published in the British Journal of Sports Medicine and commissioned by Public Health England says that British workers spend too much time sitting down on the job. Back and posture problems increasingly blight office workers and that is often due to their spending too much time in virtual immobility at their desks, working on keyboards and staring into fixed screens. Our grandfathers may also have been confined to desks but writing in journals and moving paper about (and, no doubt, sharpening quill pens) introduced a mobility we sadly lack. As employers are unlikely to be keen on employees breaking for long walks to ease their aching spines, Public Health England, thinking on its feet, has come up with a more acceptable solution – lecterns, or “sit-stand” desks as it calls them. Spending half the working day standing will help solve the stiff back problem, says the quango – though it does not mention the outbreaks of pins and needles in the shins and flat feet that surely will be our new fate.
KEY MARKET INDICES: (at 2 June 2015; comments refer to change on week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.55% (unchanged); 5 year 1.41% (slight decline).
Europe€: 1 mth -0.12% (slight decline); 3 mth -0.45% (unchanged); 5 year 0.28% (steady)
US$: 1 mth 0.22% (steady); 3 mth 0.38% (steady); 5 year 1.68% (slight rise)
Currency Exchanges:
£/Euro: 1.38, £ slightly weaker
£/$: 1.52, £ slightly weaker
Euro/$: 1.09, steady
Gold oz: $1199, falling back
Oil, Brent Crude: $64.88, continues trading within recent patterns
London Stock Exchange: FTSE 100: 6918. FTSE 350: 3834
Key indicators continue recent stable patterns. The London Stock Market saw a general uplift last week which has now fallen back, probably reflecting the somewhat disappointing UK manufacturing data released on Monday (see above).
