03 December 2015
Week in Brief: BUSINESS AND THE CITY
MOTOR WORKS: Following Jaguar Land Rover’s announcement of investment of £450m into its new engine factory at Wolverhampton, more good news for British car engineering this week as Nissan announced that it was spending £250m on its production facilities at Sunderland, Co. Durham. The Sunderland plant is another great, if less noticed success of Britain in car making – it reached its present size in 2011 and has since run at full capacity, an astonishing 500,000 cars per year, more than the entire annual car output of Italy. Not only that but, in a further rebuttal of the old British motor manufacturing image of endless strikes and low productivity, the car workers in Sunderland are the most productive in Europe, each worker making an average 118 cars per year. Some of this of course is due to the advantage of having a new, built from scratch, plant with the latest technology in it, rather than old and less efficient factories which many car makers are lumbered with, but it is a great testament to the north-eastern workforce and modern Japanese led management.
Now, in a demonstration of further belief in its business there, Nissan has confirmed that it is to make its new luxury brand of car at Sunderland, and indeed that the new car will be coming off the production line in the next few days. This is the Infiniti Q30, a hatchback luxury car designed as challenger to BWM, Mercedes, and Toyota owned Lexus, and indeed to the new small Jaguar. The new car will create several hundred new jobs, and also involve redeployment of existing workers in the factory. The Nissan plant prefers “just in time” component supplies and many of its key suppliers are situated within a few minutes drive of Nissan so that there is no danger of delay in making deliveries. The side effect of that is that the production of the Infiniti is likely to create more new jobs among than suppliers than in the factory itself – about a thousand is the estimate.
GOING WEST: It’s been a long and astonishing climb from 2007, beginning with the Quatari financed, Candy Brothers designed, apartment block One Hyde Park, marketed at and achieving prices more than double what had been the market norm for top of the range London housing at that time. From prices equating to about £1,700 a square foot for the best accommodation in the best locations, One Hyde Park set new records way above that, and was followed by a new generation of space at ever higher prices – with levels rumoured to have reached £10,000 per square foot. Not surprisingly, the intensely competitive residential development sector was anxious to take advantage of this trend and the supply of highly specified houses and apartments (never “flats”, please) has leapt up, and more and more schemes continues to hit the market. But the other side of the equation is often overlooked – there are just not that many rich people and many of them have all the London residential space they need. Over the last year the imbalance of that equation has started to show, with rumours of discounting and incentives – a “free” Range Rover in the parking bay for instance. But now the statistics are starting to prove what was suspected – data gathered from various sources, including the Land Registry, shows that sales of residential properties for over £1 million dropped by nearly 12% in the first half of 2015. In the third quarter the downwards curve steepened further, showing sales down 22%. At the top of the market it is even more dramatic – sales over £5m dropped almost 30%.
The estate agents are blaming the Treasury’s revisions to stamp duty, which has risen to 12% on high value properties. But the word is that that is only a small element in the downturn – many buyers think that London is much too expensive and fear a drop – as is now happening as they stay away. It is different, however, in New York. New York comparable residential prices are about half those in London, and enquires are said to be between a half and a third higher up on this time last year. There may be other advantages too – rich buyers worry about security in London, and are likely to do so even more after the recent outrages in Paris, whilst New York, and the United States generally are seen as more secure, 9/11 notwithstanding.
POWER OFF: The more thoughtful residential buyer might have other concerns about lifestyle in London too – for instance, how reliable their electricity supplies will be this winter. The National Grid has already had to reduce supplies to several big commercial users one evening in November (they had agreed to this in advance and received incentive payments) and has warned that at peak times over the winter it expects to be running at 99% of capacity – assuming that all available power plants and supplies are working at expected levels of contribution – that’s a big assumption. The problem is that Britain has been busy reducing traditional sources of supply without replacing them as quickly with new supplies, whether green or not. Much of the country’s nuclear supply has been closed down and is being dismantled – it is telling that Dungeness “B”, listed for closure in 2018 has just had its life extended to 2025. In the meantime the intention to build a major new nuclear plant at Hinckley Point continues to be delayed, and is unlikely to generate electricity before 2025. The entire coal powered sector is in the process of being closed over the next three to four years, including its flagship station, Drax, in East Yorkshire, which is being converted to biomass and wood chips, but at lower levels of generation. The boss of Drax, Dorothy Thompson, has warned that the closure programme is being rushed through too quickly, and, given the unreliability of wind and solar systems, which are supposed to take up the strain but need much larger reserves than conventional power, the country faces regular black out over several years until more new capacity come online.
KING COTTON RETURNS: In one of the most surprising announcements for a while, Culimeta-Saveguard has announced that it is to build a new cotton spinning line in its mill near Manchester – the only remaining one in the spinning business. North West England was of course the world centre of cotton spinning for over a century, but nearly all operations there shut down in the 1980’s and production (and a lot of the mill machinery) went to India and the Far East. But the UK’s leadership of the modern fashion industry has meant a strong demand for high quality components, including cotton threads. The new investment is modest – just £6m – but it will create 100 new jobs, and perhaps begin to re-establish UK activities in some other high end aspects of fashion manufacturing.
OUT OF FASHION: Harold Wilson famously said that devaluation would not affect the pound in your pocket; but now the pound in your pocket – or at least the bank notes – are disappearing altogether. Credit cards, debit cards, touchless payments, all mean that we carry a lot less of the folding stuff. That is bad news for De La Rue, the security printer which prints many of the world’s bank notes. It is reducing staff by 300 – mostly at its plant in Malta – and cutting output capacity by 25%. However, increasing need for security in documents such as passports and identity cards, means that as one arm of its business declines, the other improves. So the effect of this announcement was that the share price went up – to 481p
KEY MARKET INDICES: (at 2nd December 2015; comments refer to change on week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.57% (steady); 5 year 1.24% (falling).
Euro€: 1 mth -0.37% (falling); 3 mth-0.08% (falling); 5 year 0.05% (steady)
US$: 1 mth 0.96% (rising); 3 mth 0.56% (falling); 5 year 1.53% (easing)
Currency Exchanges:
£/Euro: 1.42, £ steady
£/$: 1.50, £ steady
Euro/$: 1.06, € fall
Gold, oz: $1,069, falling
Aluminium, tonne: £958 rising
Copper, tonne: £3,068, rising
Oil, Brent Crude barrel: $44.44, falling
Wheat, tonne: £112, steady
London Stock Exchange: FTSE 100: 6,425 (rising). FTSE Allshare: 3,528 (rising)
Briefly: The FTSE indices have now moved up as the curve of recent weeks reverses; maybe a classic case of war being seen as good for business? The commodities market showed a similar pattern with modest recoveries in most markets. Interest rates now seem relatively steady although the short US dollar rates continue to be very volatile.
Click here if you would like an email reminder when The Shaw Sheet comes out each Thursday
