24 May 2022
What does ‘business’ mean in various societies and how do attitudes towards business reflect the culture of those societies?
I ask this question because of a Bloomberg piece I read last week by Adrian Wooldridge. The gist of the article is that Britain has an antipathy to business compared to the US. Whereas business is treated seriously by journalists and broadcasters in America, in the UK it is an after-thought, regarded as inferior to the tickle-tackle of parliamentary infighting and the latest celebrity court case. This really struck a chord with me.
I am not sure of the context of the Prime Ministers infamous phrase about business during the Brexit negotiations but I am pretty sure that no US leader would be so foolish. It is unfortunate that the merits of business are not more rigorously explained by company bosses, politicians, and the wider establishment. It is unfortunate that we have become embarrassed about capitalism, afraid to say that market solutions offer the best way to raise growth and, therefore, to alleviate poverty, to pay for the NHS, and to maintain our welfare system. Too often in British reporting of business, profit is made to sound like an expletive. To be clear, I see defects in the way capitalism works and there is definitely a role for government to rein-in over mighty corporations, prevent monopolies evolving, protect the vulnerable in society and prompt shareholders to be more proactive in curtailing pay excesses. But business, and here I particularly mean small business, are our life blood. We have pockets of real entrepreneurship but a prevailing culture that is not supportive and often even disdainful.
Another article I read last week was by Matthew Goodwin. In it he pointed out one of the great divides evolving in British voting patterns: university education. This spells bad news for the Conservative Party because a university degree is now much more likely to be associated with voting for Labour. As Michael Gove thinks of more imaginative ways of boosting home ownership, a factor long associated with voting Conservative, his party is at risk of a much greater contrary trend brought out by the expansion of university education.
Unless, however, we solve the productivity puzzle (lots of technological advances but little change in output per person), there will be growing resentment from cohorts that have paid a lot for their university education but see restricted opportunities to use their talents. I really believe that we need to change our attitudes to business.
The British have become complacent about the world we live in. I would love our leaders to stand up and say: without businesses and the entrepreneurial spirit they represent we would not be able to support the civilised society which we take for granted. As someone who grew up on a Cheshire farm, I saw the tremendous effort and dedication needed by the self-employed but I fear that the failure to recognise the benefits of business will haunt us – both in economic and societal terms.
Coming back to the events last week. UK retail sales volumes bounced in April, recovering from a poor March; including auto fuel, retail sales rose 1.4%. Food store volumes were strong, reflecting higher spending on alcohol, confectionary, and tobacco, whilst on-line continued to do well. The question is: will this be maintained? Looking at the latest UK consumer confidence measure the answer is probably no. At -40, this is worse than any level seen in the financial crisis. Word of warning, however, when making comparisons as the question asked is about changes rather than levels. Whichever way you look at it, though, consumers are expecting tougher times ahead. A point re-enforced by the Bank of England Governor warning about food inflation.
In markets the fear of recession continued to influence government bonds. US 10-year yields finished around 2.8%, 14bps lower on the week, whilst German rates were broadly maintained. The UK gilt market, conversely, moved in the opposite direction with 10-year yields ending at 1.9%. There has also been divergence in implied inflation: US inflation fell, with a noticeable move in the 30-year rate over the last month. In contrast, UK implied inflation has remained sticky.
The fears of a corporate slowdown impacted high yield markets, with spreads moving out again. This move has taken the yield premium to levels only surpassed, in the last 10 years, in 2015-16 and 2020. Investment grade credit held in better and there was little change in sterling spreads over the week. It remains the case, however, that new issues have to give investors a good NIP (new issue premium) to attract interest. Liquidity is not great and bid-offer spreads have widened.
In currency markets sterling has stabilised a bit, having fallen from USD 1.35 to USD 1.25 since January. Markets are still pricing-in bank rate of around 2.5% in 12 months’ time. If expectations get pulled back due to growth problems, we could see more pressure on sterling.
Ending on a completely random thought. Sport is popular because it represents life’s ups and downs. The highs are made more enjoyable by the failures along the way; five minutes can pass in an instance or seem like hours, depending on circumstances. What the football Premier League represents is life in microcosm. It also shows, that in football terms, Manchester is England’s leading City. Let’s hope Liverpool can keep the Champions League title in England.
Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.