The pound jumped to a fresh 10-month high on Wednesday after it became obvious that Britain will avoid crashing out of the EU without a deal. Obvious, that is, to City traders, who have always bet that a deal is the most likely outcome of the Brexit talks and now believe it to be a racing certainty.
Theresa May’s concession of a vote in a fortnight to delay Brexit, which she agreed as a way to keep her own deal in play, was the trigger for a Mexican wave across the City.
Sterling burst through $1.33 against the US dollar for the first time since last July, a date seared on the memories of those obsessed with Brexit as the month when Theresa May outlined her Chequers plan, prompting Brexit secretary David Davis and foreign secretary Boris Johnson to resign.
Much has happened since then, though it hasn’t added up to much. One instance can be found in the government’s planning to cope with a no-deal Brexit, for which it has set aside £4bn. As the Department for Exiting the European Union admitted earlier this week, only two thirds of “critical projects” – like safeguarding medicine imports – are anywhere near completion with just four weeks to go.
Some might say this failure to prepare is part of the plan. May is still convinced she can cobble together a revised backstop that satisfies all but the most ardent Brexiteers and channels most MPs into the aye lobby when her deal comes back to the house for one last time. To stand a chance, she needs the threat of a no-deal #brexitshambles to herd MPs in her direction.
The City is less sure about the potential for May’s plan to succeed, which is why there are good odds in bank dealing rooms for a delay leading to a better deal or second referendum. Not that a softer Brexit or no Brexit at all is necessary to cheer the City. Bankers, like most large businesses, would reluctantly support Theresa May’s deal.
Maybe City traders are right to believe the latest manoeuvrings in parliament rule out a no-deal outcome.
But their view might just be overly sanguine after months of fruitful lobbying to make sure any Brexit blockages affecting the sector have been given the proverbial enema, allowing financial transactions to continue unhindered to the US and EU, deal or no deal.
The City was one of the “critical concerns” that regulators and politicians put at the front of the queue. Let’s hope it means banks won’t be too shocked should a deal prove elusive and most businesses are forced to jump out of the EU plane without a parachute.
M&S pays a high price for late admission to the online party
Go online or suffer a slow death. That’s the maxim most retailers live by. Black Friday and Cyber Monday last November pushed the proportion of retail spending online to 21.5%, up from 7.9% in the same month in 2009.
It is in that context that Marks & Spencer has asked shareholders to back a £750m 50:50 joint venture with what some people regard as the UK’s premier online food retailer, Ocado.
As a number of analysts have pointed out, the price is high. And in the light of M&S’s £1.8bn net debt, £600m will need to be raised from shareholders directly in the form of a rights issue and a hefty cut of 40% in the dividend payout is also required. Understandably, shares in the company fell more than 12%.
But the M&S board may believe it had little option.
It might have continued to ignore online food sales, but as more shoppers switch online that is not a strategy for growth. Especially with the ever-looming threat of Amazon marching into the UK grocery business. M&S has been considering and experimenting with online food sales for years, but it is now paying the price for being late to the party – very late: Tesco.com started in 2000.
M&S could also have developed its own IT system and warehousing. But that would also have been expensive and could have been far riskier, potentially leaving investors with years of misery as managers reported one glitch after another.
M&S has form here – its most recent foray into automated warehousing and stockpicking was so disastrous that insiders referred to it as their “bleeding edge” technology.
Ocado, on the other hand, saw its shares edge up 3%. It never had a brilliant working relationship with Waitrose and its M&S deal will be more lucrative and provide the cash it needs to continue investing in new distribution hubs for other customers.