ALEX BRUMMER: Pound rises to the occasion

Fans of the steamy BBC dealing room drama Industry will be less than impressed at the flimsy evidence on which multi-million-pound trades on foreign exchange markets are made.

A combination of guile, instinct and, occasionally, hard data drives trends. Currency dealers may have little more direct insight as to what is going on in the trade negotiations in Brussels than most of the public but have reached the conclusion that a deal eventually will be cobbled together.

Anyone familiar with how the EU bureaucracy works, whether it be the rescue for Greece, after the 2010 euro crisis or releasing the Covid bailout package, will be aware decisions always go down to the wire.

Sterling soars: The UK’s resilience after the financial crisis, in spite of fiscal austerity, offers reason for hope and a stronger pound

Sterling soars: The UK’s resilience after the financial crisis, in spite of fiscal austerity, offers reason for hope and a stronger pound

This has created a one-way bet, with the occasional wobble, for sterling bulls driving the currency up to $1.35, with $1.40 in sight. A deal would take the uncertainty over the future of UK-EU relations off the table.

But fundamental questions about the UK economy are unresolved. After a forecast loss of output of 11.3 per cent this year, it may take until the final quarter of 2022 for growth lost in Covid to be recovered. As for Brexit, it could knock another couple of per cent off GDP over the next several years.

So it is hard to be wholly optimistic about sterling retaining its firmness. Nevertheless, there are some positives. 

At 4.9 per cent of the workforce, unemployment is considerably better than the 10 per cent forecast during the first lockdown. The furlough scheme has held up the labour market.

It will not be possible to get a true picture until job retention runs out in March. As Bank of America notes in its latest survey consumer confidence in lockdown 2 actually recovered ground helped by furlough.

There are difficult times still ahead but vaccine developments have improved the outlook and there is still £100billion of coronavirus savings potentially to be released. The UK’s resilience after the financial crisis, in spite of fiscal austerity, offers reason for hope and a stronger pound.

No Deal now, after all the deadline delays, would have Industry traders yelling ‘sell’. That is if they can manage a break from bonking.

Digital rebirth

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Who would have thought? For years Dixons Carphone has ridden a precarious economic cycle, struggling to stay solvent during downswings.

Big changes started under previous chief executive Sebastian James, who rediscovered customer service. Current boss Alex Baldock backed an online revolution.

The pandemic saw the owner of Currys and PC World come into its own with 57 per cent of sharply increased sales online. A huge success has been an online button that lets customers to talk tech with store experts.

Dixons has found a way of integrating its online offer of 17,000 items with shopping at its 300 or so UK branches.

It is also that rare British thing, a UK retailer putting on sales in the Nordics and Greece. Baldock is still grappling with problems of uneconomic Carphone contracts which won’t be off the books until 2022.

But with before-tax profits at £89million in the first half and same-store sales up 17 per cent Dixons is riding a wave. 

By year-end next March there may be a restored dividend. And maybe the board will think the time is right to hand back some business rates relief.

Tobacco road

Several decades have passed since BAT decided that among the ways to detoxify its exposure to tobacco was to go into insurance, snapping up brands such as Eagle Star.

That way, when people died from tobacco-connected lung diseases there would be a kindly insurer ready to pay out to the bereaved families.

Then conglomerates became unfashionable, BAT became a pure tobacco play again, selling its insurance and retail holdings, which included Saks 5th Avenue.

Now it has found a new way of burnishing its reputation beyond the vaping revolution. Its biotech arm, Kentucky Bioprocessing, has uncovered the medicinal value of the tobacco leaf, and won the approval of the US regulator, the Food & Drug Administration, to steam ahead with trials of its ‘plant-based’ tech for a Covid vaccine.

This is going to create a huge dilemma for ethical investors who have rushed over the years to consign big tobacco to the dustbin of history. It could even be opportunity for schadenfreude in the BAT boardroom.

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