Boosters for British growth
THE economic shock of Brexit has been significant. But with the right policy responses, it doesn’t have to be disastrous.
Some business investment decisions may have been postponed in the run up to the referendum but it is worth noting that as the vote approached the economy was gathering momentum. The latest survey of UK manufacturing (the Purchasing Managers Index) rose from 50.4 points in May to 52.1 in June, which in normal circumstances would be considered a healthy gain.
The strongest reaction to Leave has been on the foreign exchange markets, where sterling has dropped 10pc. Clearly this comes at a bad time for British holidaymakers heading overseas. But we shouldn’t underestimate the positive impact it will have on big UK-based multinationals, making our goods more competitive overseas and strengthening foreign currency earnings repatriated to Britain. It is among the reasons why the FTSE 100, dominated by big global companies, has bounced so quickly.
Britain’s devaluation is an instant adjustment not available to the 19 countries in the eurozone facing fiscal, banking and similar shocks. Other help is also on the way. The Bank of England has been quick to step up to the plate with a coherent plan to make sure Britain avoids the kind of credit crunch which was so damaging in 2008-09. The Monetary Policy Committee will want to see some data before action, which may mean that the expected cut in the bank rate from 0.5pc to 0.25pc could be delayed until August, with other measures such as corporate bond buying held in reserve.
Meanwhile, we have now had the most significant policy move from the Chancellor George Osborne since the referendum campaign when he warned of higher taxes and more austerity.
Speaking in Manchester, Osborne noted that while the Government would continue to keep an eye on the deficit it might not be possible to achieve a budget surplus by the end of the decade. In other words, he is effectively taking his foot off the brakes and allowing a more expansionary budgetary policy for the time being.
The credit rating agencies may have removed Britain’s ‘AAA’ rating but that has done nothing to put people off UK corporate or government bonds. Lloyds comfortably sold £750m worth of bonds on the New York markets. And Santander UK has launched a £500 floating rate bond in London. The yield on ten-year gilts dropped to just 0.81pc.
Investors would not be lending UK plc money for such low returns if they believed the nation was on a financial precipice.
Chocolate wars
WHEN Cadbury chairman Sir Roger Carr cast around for a white knight in the autumn of 2009 as he sought to fend off the unwanted attentions of Irene Rosenfeld’s Kraft, the first port of call was the Hershey Trust with 8.1pc of the shares and 81pc of the votes in the totemic chocolate maker, Hershey. Both companies had a strong family ethos and for many years Hershey has manufactured key Cadbury products in the US.
The Kraft boss freed the growth confectionary and cookie brands from the stodgy processed cheese group and re-floated it as Mondelez. Now Rosenfeld is at it again.
Mondelez has swooped on Hershey with a £17.3bn takeover offer. Hershey will be a harder nut to crack than Cadbury.
The shares in the Pennsylvania-based firm and theme park owner are closely held by the Hershey Trust and the company is seen in its home state as a local champion. Being part of a highly diversified, financially driven global group may not seem that attractive an idea.
The initial rejection is simply on price with the proposed premium to Hershey shares, of around 10pc, seen as sub-octane.
There would clearly be huge synergies if Her- shey, home of M&M, Hershey’s Kisses and Reese’s Pieces could be brought together with Mondelez. The Cadbury legacy means the successor company is strong in growth markets including India and Australia, and would plainly give Hershey more heft on the global stage. Bringing together mass market chocolate producers – from the world’s two highest consuming nations, the US and Britain – could also produce great cost savings.
Hershey should remember, however, that Mondelez is ruthless, its promises are not worth the paper they are written on and it has a habit of switching production (remember the Wispa bar) from higher- cost countries such as the UK to Poland.
As always, the cheerleaders for big takeovers are urging Mondelez to up the bid to the level where the Hershey Trust may find it hard to resist the cash.
If it concedes it could mean a betrayal of heritage and dilution of brands. Ask the fans of Cadbury Creme Eggs.
Low flying
AS someone who lives under the flight path, I have a vested interest in the third runway at Heathrow never being built.
But it is sheer folly that a year has passed since Sir Howard Davies’ airport commission made the case for the new runway.
There could have been no better moment than now for the Government to signal its determination to show Britain is open to global business. Instead, it has kicked a decision into the long grass until October. Bonkers.