Making predictions in the world of business and economics is a fool’s errand but that’s no reason not to have a crack at it. Here are some things to look out for in 2019, which could be a rollercoaster ride.
Global gloom and doom
How about global recession, a US-China trade war and a chaotic Brexit for starters? Any or all of these could cast a shadow over people and businesses the world over.
The greatest unknown for British business and the economy lies in the possibility of a no-deal Brexit. The automotive industry has warned that production lines could be halted and investment choked off, while Airbus said it would be forced to cut jobs and pull billions of pounds in UK spending. Between them, carmakers and the European aerospace giant support around 1m jobs. That’s before one begins to assess the impact on industries such as pharmaceuticals, aviation, food and drink or London’s financial sector.
Then there’s the prospect that the early skirmishes of a Sino-US trade war turn into full-blown hostility. There’s no telling what Donald Trump will do or say next so any optimism that the spectre of mutually assured destruction will bring everyone back from the brink seems naive.
Trade wars, coupled with higher interest rates in major economies such as the US, could place greater drag on a global economy that already seems to be cooling, particularly in Europe and Asia. However, respected economist Nouriel Roubini has said a crash won’t come until 2020. You’ve got to take your crumbs of comfort where you can.
The next Carillion?
Ever since the outsourcing and construction firm’s ignominious collapse a year ago, pundits and short-sellers have been placing bets on who will be next. The two companies mentioned most often in the same breath as Carillion are Kier and Interserve. Both insist they have taken pre-emptive steps to avoid a similar fate. But there were some concerning words in Kier’s explanation for having to go cap in hand to shareholders for £250m. It warned that banks were pulling back from lending to the construction industry – words that will have sent shivers down the spine of anyone who remembers the last financial crisis.
Fracking hell
Cuadrilla became the first company to frack for gas since 2011 this year, drilling near Blackpool, Lancashire. Rivals are set to follow suit, with iGas probably the most likely to get fracking in 2019 and petrochemicals giant Ineos also champing at the bit. If Cuadrilla’s experience is anything to go by though, this could mean minor earthquakes in and around the areas where hydraulic fracturing – to give it its full name – takes place. If tremors become commonplace, 2019 could well be the year in which fracking becomes politically unpalatable in the UK for the foreseeable future.
Ryanair revolution
Ever since Ryanair boss Michael O’Leary agreed to recognise trade unions, he’s been at war with them. The year 2018 involved disruptive strike action by pilots and cabin crew, leading to flight cancellations. Ryanair has made some concessions on pay and conditions but O’Leary isn’t the sort of man to let anyone else have the last word, branding his pilots “a bunch of layabouts” in December. How long can labour relations remain this poor before something has to give? Could 2019 be the year that O’Leary steps down?
High street, low sales
It’s hard to imagine how conditions on the high street could get much worse. Failures in 2018 included Maplin’s, Toys R Us, House of Fraser and Poundworld. Now Debenhams is in a difficult position.
What's the problem?
Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. This year has seen the disappearance of Toys R Us, Maplin and Poundworld as a result.
In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores. At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
How has the festive season gone so far?
Trading has been tough, particularly for clothing retailers, as another relatively mild autumn hit sales of costly items such as coats and knitwear while shoppers have held out later than ever in the hope of getting bargain presents. The founder of Sports Direct, Mike Ashley, described November as “the worst on record, unbelievably bad” as he warned that warned that Debenhams and other big retail names faced being “smashed to pieces” by a high street downturn.Even online specialist Asos shocked the City when it issued a profits warning earlier this month as it admitted it had lost sales by not offering steep enough discounts during the Black Friday week.
What help do retailers need?
Retailers with a high street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after March 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
What is the government doing?
In the October budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m “future high streets” fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
What is the outlook in 2019?
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the Far East, will also add to costs and hit profits.
Brexit contingency plans, including stockpiling of goods, are already costing retailers money. Consumers are reining in spending. Weakness in the housing market means homewares may continue to suffer, while fashion sales remain in the doldrums. The government has offered little sign of relief on punishing business rates, while the threat posed to traditional stores by lightly taxed online giants is unlikely to abate.
Reefer madness
Predictions for 2019 have offered precious few reasons to giggle uncontrollably so far but here’s one. The liberalisation of cannabis laws in North America presents huge opportunities for big business. Marlboro cigarette company Altria has agreed to invest $1.9bn in cannabis firm Cronos, while Budweiser owner AB InBev is working with Canadian pot firm Tilray on a $100m research deal into non-alcoholic drinks containing the active ingredients of cannabis, THC and CBD.
However, you look at it, 2018 has been a high point (apologies) for the cannabis industry. Marijuana smokers are legion and the US market is gigantic. Expect interest and investment to surge in 2019.
Bank battles
Legal battles lie ahead for former Barclays’ executives and Lloyds, raising the mouth-watering prospect of finding out which is the tougher opponent for the might of the financial sector, the Serious Fraud Office or television presenter Noel Edmonds.
The SFO is set to begin its case against bankers including former Barclays chief executive John Varley over the bank’s fundraising deals in the Middle East at the height of the credit crunch.
Meanwhile, Edmonds’ £60m suit against Lloyds for alleged fraud at HBOS is set to continue, with the TV star preparing to file his legal claim.
