Mark Carney could just as easily have shrugged his shoulders and declared that, like the rest of us, he hasn’t a clue how Brexit will work out. Instead, the Bank of England governor, obliged to riff on a theme when unveiling new economic forecasts, opted for “the fog of Brexit”, which amounted to much the same thing. Sadly, he couldn’t say when visibility will improve.
Financial markets, too, seem baffled. The headline news that the Bank was making deep cuts to its GDP forecasts for this year and next sent the pound lower initially. The reaction seemed logical. The cut for 2019 was from 1.7% to 1.2%, which is severe. The new projections rely on a catch-up in the second half of the year just to achieve the slowest rate of annual growth since 2009. A recession this year is put at a one in four chance – and that assumes a no-deal, no-transition Brexit is avoided.
Within half an hour, though, sterling was climbing. You could have bought pounds at $1.2855 against the dollar soon after the Bank’s forecasts were published and sold two hours later at a whisker under $1.30. In the world of foreign exchange trading, that is a huge intra-day move. Markets, after digesting the detail of Carney’s comments, seemed to conclude that the Bank hadn’t entirely retreated from its rate-rising ambitions and that Plan A will return if there’s a Brexit deal that releases pent-up business and consumer demand.
Well, yes, a vast range of outcomes is possible – anything from a Brexit bounce in the event of a smooth exit to the near-certainty of recession if there is no deal. Seven weeks from the intended departure, though, it’s an extraordinary position. In the circumstances, it seems a minor miracle that business investment has fallen only 3% in the past year, according to the Bank’s estimate. That could have been worse – and may yet be.
Superdry: time for action, not words
A pattern is emerging at Superdry. The clothing retailer announces weak trading numbers and up pops Julian Dunkerton, founder and 19% shareholder, to denounce the board for following a “misguided” strategy that is “failing dismally”.
It’s a bit like easyJet in the old days. On results days Sir Stelios Haji-Ioannou could usually be relied upon to damn the directors for being mean with dividends or ordering too many aircraft. There is a difference, however. Sir Stelios did eventually get round to voting his shares in anger, trying (and failing) to get the chairman removed in 2012. At least he backed his words with action. Dunkerton should take note.
There is a real debate to be had at Superdry after the share price crash in the past year. Has the brand strayed too far from its roots as chief executive Euan Sutherland seeks to address a perceived over-reliance on jackets and hoodies? Is the online strategy wrong? And, for his part, Dunkerton should explain why he quit the board last March if he felt so strongly.
“As shareholders, we continue to suffer unnecessary value destruction and I am absolutely committed to restoring the business and brand back to strength,” he said on Thursday. That seemed to imply he will put himself up for re-election to the board and let shareholders decide. But he should get on with it.
Thomas Cook: another review takes off
It’s been at least five minutes since Thomas Cook’s last strategic review so here’s another. The future of the airline will be explored with a view to improving “financial flexibility”. Translation: we’ve got too much debt so please make us an offer.
The timing is terrible, of course. European skies are full of stricken airlines. But somebody, in theory, should be interested since Thomas Cook’s airline made operating profits of £129m last year. Any deal would also, presumably, come with an arrangement to tie in the captive package holidaymakers, who represent about 45% of the passengers. There will be attractive landing slots and Condor, the German operation, is strong on its home patch. City estimates that the airline could fetch £1bn-plus sound plausible.
But let’s not pretend that Thomas Cook would be contemplating this strategic U-turn if it had a healthy balance sheet. Yes, better financial returns can probably be made by investing in smart own-brand hotels but a mass-market tour operator without an airline is a riskier long-term proposition. A sale, if it happens, needs to be at a superb price.
