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Oil prices hit fresh four-year high above $82 – business live Oil prices hit fresh four-year high above $82 – business live
(35 minutes later)
This is quite interesting. The European Medicines Agency, the European drug regulator, is moving from London to Amsterdam next year, but is having trouble getting out of its 25-year lease at 30 Churchill Place in Canary Wharf, where it occupies 10 floors.
From Reuters Breakingviews:
The European Medicines Agency is making a grim prognosis for London’s property market. The EU’s drug watchdog is using an arcane legal manoeuvre to try to get out of a lease on its UK headquarters. If successful, the case could set a dangerous precedent. Either way, London landlords should be worried...
The EMA is deploying a rarely used legal argument that dates back to the 19th century, known as “frustration”. That allows parties to cancel a contract if an unforeseen event renders it impossible to fulfill. In one case, a plaintiff used frustration to terminate a lease after the cancellation of Edward VII’s coronation. If the EMA is successful, other tenants may follow.
It looks like a long shot. Canary Wharf can argue that the existence of Article 50 in the Treaty of Lisbon, which was signed in 2007, shows that Brexit was not an unforeseen event. And UK politicians made the case for such a referendum long before the lease was first agreed in 2011. Nick Clegg, the former leader of the Liberal Democrats party, argued for a vote in 2008.
The EMA has other options. Although the lease has no break clause, it does allow the drug regulator to sublet the space to other tenants. The EMA is exploring that option, according to one person familiar with the matter.
The snag is that Brexit means there is little demand for large office spaces. Banks are already moving staff out of London, with 75,000 workers likely to leave, according to consultancy Oliver Wyman. The fallout will be more severe if the UK can’t agree a deal with Europe: asset managers would also leave, and an economic downturn would hit demand for flexible office space. Providers like WeWork are now central London’s biggest office occupier. Analysts at Jefferies reckon rents in the City of London will fall by a fifth over the next two years. Small wonder that the EMA is getting creative.
Returning to the rise in Brent crude above $82 a barrel (up 1% on the day), Ashley Kelty, oil & gas research analyst at Cantor Fitzgerald Europe, believes that Opec will take its time before it takes any action.Returning to the rise in Brent crude above $82 a barrel (up 1% on the day), Ashley Kelty, oil & gas research analyst at Cantor Fitzgerald Europe, believes that Opec will take its time before it takes any action.
The US has become the world’s biggest producer, although it is reaching peak output as infrastructure constraints are beginning to bite. These two will mean that supply will remain relatively tight in the near term, although OPEC were always likely to prevaricate at this meeting, as they (Russia and Saudi) don’t wish to do anything that would appear to be appeasing the US, whilst being able to build market share at the expense of Iran.The US has become the world’s biggest producer, although it is reaching peak output as infrastructure constraints are beginning to bite. These two will mean that supply will remain relatively tight in the near term, although OPEC were always likely to prevaricate at this meeting, as they (Russia and Saudi) don’t wish to do anything that would appear to be appeasing the US, whilst being able to build market share at the expense of Iran.
The group also wants to wait and see how the Iran sanctions play out, and whether the US-Sino trade war escalates further, and thence begins to threaten the global economy. Furthermore, OPEC are thrilled at the current oil price as it helps refill the national coffers after the Saudi-instigated collapse several years ago. Ironically, Trump should also be somewhat pleased that the recent price rise has triggered the creation of a lot of jobs and helped the non-farm payroll figures get better.The group also wants to wait and see how the Iran sanctions play out, and whether the US-Sino trade war escalates further, and thence begins to threaten the global economy. Furthermore, OPEC are thrilled at the current oil price as it helps refill the national coffers after the Saudi-instigated collapse several years ago. Ironically, Trump should also be somewhat pleased that the recent price rise has triggered the creation of a lot of jobs and helped the non-farm payroll figures get better.
The lack of any concrete action by OPEC will increase focus on the rhetoric and actions by OPEC nations ahead of the next meeting in November. We reckon that OPEC are happy to sit back and see how the aforementioned sanctions and tariffs shale out before acting.The lack of any concrete action by OPEC will increase focus on the rhetoric and actions by OPEC nations ahead of the next meeting in November. We reckon that OPEC are happy to sit back and see how the aforementioned sanctions and tariffs shale out before acting.
Investors have brought forward their bets on the first interest rate hike from the European Central Bank since 2011. Money markets now assume that the ECB will raise interest rates next September – before the departure of the central bank’s president Mario Draghi. He finishes his term at the end of October 2019.Investors have brought forward their bets on the first interest rate hike from the European Central Bank since 2011. Money markets now assume that the ECB will raise interest rates next September – before the departure of the central bank’s president Mario Draghi. He finishes his term at the end of October 2019.
Draghi yesterday predicted a “relatively vigorous” pickup in underlying inflation, which has been interpreted by some traders and investors as a signal that rates could go up faster than expected. They had pencilled in a rate hike for the ECB’s October 2019 meeting, but have shifted this to the September meeting.Draghi yesterday predicted a “relatively vigorous” pickup in underlying inflation, which has been interpreted by some traders and investors as a signal that rates could go up faster than expected. They had pencilled in a rate hike for the ECB’s October 2019 meeting, but have shifted this to the September meeting.
Martin van Vliet, senior rates strategist at ING, told Reuters:Martin van Vliet, senior rates strategist at ING, told Reuters:
You can downplay what Draghi said yesterday, but I think it was a notable shift in rhetoric.You can downplay what Draghi said yesterday, but I think it was a notable shift in rhetoric.
If inflation unfolds as the ECB now forecasts, then it makes sense for markets to brace for the first rate hike before Draghi leaves.If inflation unfolds as the ECB now forecasts, then it makes sense for markets to brace for the first rate hike before Draghi leaves.
The ECB last raised rates in 2011 when Jean-Claude Trichet was president.The ECB last raised rates in 2011 when Jean-Claude Trichet was president.
Over in the US, the Federal Reserve is widely tipped to lift interest rates for the third time this year at the end of its meeting tomorrow, following strong economic figures.Over in the US, the Federal Reserve is widely tipped to lift interest rates for the third time this year at the end of its meeting tomorrow, following strong economic figures.
The government yesterday said that flights between the UK and the rest of the EU could be grounded if Britain crashes out of the bloc without a deal.The government yesterday said that flights between the UK and the rest of the EU could be grounded if Britain crashes out of the bloc without a deal.
In response, the global airline industry body Iata has issued a stark warning about the implications of a no-deal Brexit today, saying that the impact is far broader. Pilots’ licenses and security arrangements also need to be agreed.In response, the global airline industry body Iata has issued a stark warning about the implications of a no-deal Brexit today, saying that the impact is far broader. Pilots’ licenses and security arrangements also need to be agreed.
The association’s director general, Alexandre de Juniac, said in a statement:The association’s director general, Alexandre de Juniac, said in a statement:
The UK government’s papers on the air transport implications of a “no deal” departure from the EU clearly exposes the extreme seriousness of what is at stake and underscores the huge amount of work that would be required to maintain vital air links.The UK government’s papers on the air transport implications of a “no deal” departure from the EU clearly exposes the extreme seriousness of what is at stake and underscores the huge amount of work that would be required to maintain vital air links.
It is not just permission for flights to take off and land. Everything from pilots’ licenses to security arrangements need to be agreed. Much of this could be secured through mutual recognition of existing standards. But formalising this cannot happen overnight. And even when that is done, there will still be an administrative burden for the airlines and governments involved that will take time and significant resources.It is not just permission for flights to take off and land. Everything from pilots’ licenses to security arrangements need to be agreed. Much of this could be secured through mutual recognition of existing standards. But formalising this cannot happen overnight. And even when that is done, there will still be an administrative burden for the airlines and governments involved that will take time and significant resources.
While we still hope for a comprehensive EU-UK deal, an assumption that “it will be all right on the night” is far too risky to accept. Every contingency should be prepared for, and we call upon both the EU and the UK to be far more transparent with the state of the discussions.While we still hope for a comprehensive EU-UK deal, an assumption that “it will be all right on the night” is far too risky to accept. Every contingency should be prepared for, and we call upon both the EU and the UK to be far more transparent with the state of the discussions.
The pound is also higher for a second day amid growing hopes of a Brexit deal, continuing its recovery from Friday’s sell-off when the UK ran into an impasse in Brexit talks with EU leaders in Salzburg.The pound is also higher for a second day amid growing hopes of a Brexit deal, continuing its recovery from Friday’s sell-off when the UK ran into an impasse in Brexit talks with EU leaders in Salzburg.
Sterling is currently 0.26% higher against the dollar at $1.3154 and has gained 0.1% against the euro to 89.42p. On Friday, it fell to a low of $1.3053.Sterling is currently 0.26% higher against the dollar at $1.3154 and has gained 0.1% against the euro to 89.42p. On Friday, it fell to a low of $1.3053.
Brexit secretary Dominic Raab talked up the chances of an eventual deal yesterday, although he added that the government was also ready and prepared for a no-deal scenario.Brexit secretary Dominic Raab talked up the chances of an eventual deal yesterday, although he added that the government was also ready and prepared for a no-deal scenario.
However, some are sceptical that the pound’s recovery will last. Hedge funds have been building up a massive bet against sterling since April, when it traded above $1.42.However, some are sceptical that the pound’s recovery will last. Hedge funds have been building up a massive bet against sterling since April, when it traded above $1.42.
Hedge funds are betting big against sterling. And following last week’s Brexit debacle in Salzburg, that bet may now be nearing the largest on record.Commentary: Hedge funds, smelling Brexit blood, circle sterling https://t.co/isx0i3jTsZ pic.twitter.com/NMMz38DbHwHedge funds are betting big against sterling. And following last week’s Brexit debacle in Salzburg, that bet may now be nearing the largest on record.Commentary: Hedge funds, smelling Brexit blood, circle sterling https://t.co/isx0i3jTsZ pic.twitter.com/NMMz38DbHw
The high-street retailer Next revealed today that it had hedged against a further weakening of the pound until 2020. It said:The high-street retailer Next revealed today that it had hedged against a further weakening of the pound until 2020. It said:
In effect, we have insured the company against cost price volatility as a result of the potential devaluation of the pound. The corollary of this is that if the pound significantly strengthens next year we will not reap any of the reward until the following year.In effect, we have insured the company against cost price volatility as a result of the potential devaluation of the pound. The corollary of this is that if the pound significantly strengthens next year we will not reap any of the reward until the following year.
With Brent crude oil prices holding above $82 a barrel, the highest in four years, $100 a barrel has become the talk of the oil town.With Brent crude oil prices holding above $82 a barrel, the highest in four years, $100 a barrel has become the talk of the oil town.
Analysts at Petromatrix warn:Analysts at Petromatrix warn:
We are quite confident that at $100 a barrel Brent, global oil demand growth will be annihilated. $100 a barrel Brent looks fine on a chart but it looks problematic on a currency-adjusted chart, and disastrous on a domestic-price chart.We are quite confident that at $100 a barrel Brent, global oil demand growth will be annihilated. $100 a barrel Brent looks fine on a chart but it looks problematic on a currency-adjusted chart, and disastrous on a domestic-price chart.
Only the last one matters for oil demand and domestic prices include taxes that have risen over the last few years, while subsidies have fallen. On a domestic-price basis, $100 a barrel crude will not only force a sharp reduction of global oil demand, it will also lead to inflationary pressures that will force higher interest rates in Emerging Markets, which in turn could lead to wider pressure on economic growth. Many Emerging Markets will be forced to cut oil taxes or increase subsidies, resulting in turn in widening budget deficits.Only the last one matters for oil demand and domestic prices include taxes that have risen over the last few years, while subsidies have fallen. On a domestic-price basis, $100 a barrel crude will not only force a sharp reduction of global oil demand, it will also lead to inflationary pressures that will force higher interest rates in Emerging Markets, which in turn could lead to wider pressure on economic growth. Many Emerging Markets will be forced to cut oil taxes or increase subsidies, resulting in turn in widening budget deficits.
In developed economies, oil would make a come-back at $100 a barrel right at the time when the major auto manufacturers are introducing new lines of electric cars and that should result in an acceleration of the sales trend of Alternative Fuels Vehicles, on top of a price-induced contraction of oil demand.In developed economies, oil would make a come-back at $100 a barrel right at the time when the major auto manufacturers are introducing new lines of electric cars and that should result in an acceleration of the sales trend of Alternative Fuels Vehicles, on top of a price-induced contraction of oil demand.
The rise in oil prices has benefited shares in BP and Royal Dutch Shell and pushed Britain’s top share index higher. BP and Shell are among the main risers, up nearly 2% and 1.7% respectively.The rise in oil prices has benefited shares in BP and Royal Dutch Shell and pushed Britain’s top share index higher. BP and Shell are among the main risers, up nearly 2% and 1.7% respectively.
Top of the index is highstreet retailer Next, whose profit upgrade confounded expectations, at a time when other well-known retailers including John Lewis are struggling.Top of the index is highstreet retailer Next, whose profit upgrade confounded expectations, at a time when other well-known retailers including John Lewis are struggling.
Shares in Glencore are also higher, rising 2.9%, after the mining and trading giant launched an additional $1bn share buyback.Shares in Glencore are also higher, rising 2.9%, after the mining and trading giant launched an additional $1bn share buyback.
The FTSE 100 has edged up 0.2% to 7,475.92.The FTSE 100 has edged up 0.2% to 7,475.92.
Others say crude prices could rise above $100 a barrel as market uncertainties stack up –including sanctions on Iran, Venezuelan production concerns, tighter crude inventories and Saudi spare capacity.Others say crude prices could rise above $100 a barrel as market uncertainties stack up –including sanctions on Iran, Venezuelan production concerns, tighter crude inventories and Saudi spare capacity.
Oil traders gathered at the S&P Global Platts Asia Pacific Petroleum Conference in Singapore yesterday, where Daniel Jaeggi, president and co-founder of Mercuria Energy Trading, told the conference:Oil traders gathered at the S&P Global Platts Asia Pacific Petroleum Conference in Singapore yesterday, where Daniel Jaeggi, president and co-founder of Mercuria Energy Trading, told the conference:
I think we may well be on the verge of some very significant volatility here in Q4 2018 because, depending on the severity and the duration of the Iranian sanctions, the market simply does not have an adequate supply response for 2 million b/d of oil disappearing from the market.I think we may well be on the verge of some very significant volatility here in Q4 2018 because, depending on the severity and the duration of the Iranian sanctions, the market simply does not have an adequate supply response for 2 million b/d of oil disappearing from the market.
It is conceivable to see oil north of $100 a barrel.It is conceivable to see oil north of $100 a barrel.
The US sanctions on Iran threaten to cut Iran’s crude exports to as little as 1 million to 1.3 million barrels a day from over 2.5 million barrels a day, according to Trafigura.The US sanctions on Iran threaten to cut Iran’s crude exports to as little as 1 million to 1.3 million barrels a day from over 2.5 million barrels a day, according to Trafigura.
Ben Luckock, co-head of oil trading at Trafigura, said.Ben Luckock, co-head of oil trading at Trafigura, said.
I think it is entirely possible that once are beyond that we trade higher into Christmas and higher again into the New Year. I think it is entirely plausible that you are at $90 by Christmas and you are probably going to trade $100 in the New Year.I think it is entirely possible that once are beyond that we trade higher into Christmas and higher again into the New Year. I think it is entirely plausible that you are at $90 by Christmas and you are probably going to trade $100 in the New Year.
Barclays Capital also believes oil prices will go higher, without saying by how much.Barclays Capital also believes oil prices will go higher, without saying by how much.
Richard Robinson, manager of the Ashburton Global Energy Fund, says oil prices could surge another 12% to above $90 a barrel by the end of the year, due to tight supply, healthy demand, falling global inventories and anaemic spare capacity.Richard Robinson, manager of the Ashburton Global Energy Fund, says oil prices could surge another 12% to above $90 a barrel by the end of the year, due to tight supply, healthy demand, falling global inventories and anaemic spare capacity.
He notes that “without spare capacity, OPEC is relatively impotent in relation to preventing rising prices”.He notes that “without spare capacity, OPEC is relatively impotent in relation to preventing rising prices”.
Following four years of collapsing international capital spend, Trump’s removal of the world’s fifth largest oil producer, Iran, from the market – with sanctions to be fully implemented in November – was never going to end well.Following four years of collapsing international capital spend, Trump’s removal of the world’s fifth largest oil producer, Iran, from the market – with sanctions to be fully implemented in November – was never going to end well.
Iran is now likely to focus on influencing oil prices in the only way left available, by disrupting supply from others and elevating the risk premium – hence the military exercises performed over the Strait of Hormuz over the weekend.Iran is now likely to focus on influencing oil prices in the only way left available, by disrupting supply from others and elevating the risk premium – hence the military exercises performed over the Strait of Hormuz over the weekend.
Following Trump’s call for support from OPEC, the only country able to increase production significantly since July has been Libya. It increased production by 270k bbld, compared to Saudi Arabia’s decline of 140k bbld – and this could disappear in a heartbeat.Following Trump’s call for support from OPEC, the only country able to increase production significantly since July has been Libya. It increased production by 270k bbld, compared to Saudi Arabia’s decline of 140k bbld – and this could disappear in a heartbeat.
There is a risk that prices could spike even higher, Robinson reckons.There is a risk that prices could spike even higher, Robinson reckons.
In the event of a large supply disruption, both OPEC and the US – due to a lack of takeaway capacity in 2019 – will find it increasingly difficult to meet shortfalls next year. The world could then be faced with oil prices spiking back up to all-time highs circa $120.In the event of a large supply disruption, both OPEC and the US – due to a lack of takeaway capacity in 2019 – will find it increasingly difficult to meet shortfalls next year. The world could then be faced with oil prices spiking back up to all-time highs circa $120.
Brent crude has broken through $82 a barrel, rising as high as $82.20.Brent crude has broken through $82 a barrel, rising as high as $82.20.
Iran’s oil exports fell by more than 700,000 barrels a day between April and August, when the US reimposed sanctions on the country. The sanctions will be fully implemented in November.Iran’s oil exports fell by more than 700,000 barrels a day between April and August, when the US reimposed sanctions on the country. The sanctions will be fully implemented in November.
Oil prices continue to rise today, with Brent crude, the global benchmark, hitting a fresh four-year high of $81.69 this morning. Some traders are predicting that the supply crunch could trigger a spike to $90 or even $100 a barrel around the turn of the year.
The Opec oil cartel rebuffed calls for action from Donald Trump at the weekend, by not raising output to offset the loss of Iranian production due to new US sanctions against the country.
Michael Hewson, chief market analyst at CMC Markets UK, said:
President Trump has been quite critical of OPEC on a number of occasions in the past few weeks as oil prices have continued to edge higher, blaming them for the continued rise in prices, conveniently ignoring his part in the move higher. When the US reimposed sanctions in August Brent prices had slipped back to $73 a barrel having tried and failed to push through $80 on two previous occasions.
Whatever the rights of wrongs of the decision to reimpose sanctions it has had the effect of removing 3m barrels of output from the global oil supply. Given the cuts to capital expenditure as a result of the slide from $110 in 2014 to the lows of $27 a barrel in 2016, it was always going to be difficult to replace that capacity, at a time when inventories have been declining, and so it has been proved.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said:
Next has decided it can do without the headache of currency risk stemming from Brexit, and has hedged out its exposure to sterling on products it plans to sell right up to January 2020. This means it won’t benefit from any rise in sterling, but equally there are no nasty surprises for the business if the currency heads in the other direction.
Next deserves credit for presenting investors with a clear and insightful picture of its business in this set of results. The retailer has shown itself to be a resilient, well-managed company through a difficult period for the sector. Next isn’t immune to the problems besetting the high street, but it’s doing the right things to ensure it makes it to the other side in decent shape.
Here is some reaction to the Next figures. Sofie Willmott, senior retail analyst at data company GlobalData, said:
The positive figures announced by high street bellwether Next are likely to be perceived as a sign that the UK retail environment is recovering, however Next has made wise operational decisions which have aided growth and enabled the retailer to capitalise on changing shopping habits. Next’s robust performance should not be attributed to a general upturn in consumer spending and as such other retailers that are not making strides in improving their customer proposition, are unlikely to see the same results.
Next is better protected as sales continue to transition online, given the dominance of its digital channels, and is well prepared with a more agile retail estate comprising of shorter leases and profitable stores.
Stores remain a declining part of the business but Next is utilising physical locations to its advantage, for example by adding in concessions to drive revenue and give shoppers other reasons to visit Next, and also as a back-up stock pool for online orders. In addition Next is considering using stores as collection points for ‘third-party non-competing businesses’ demonstrating a willingness to extend its purpose, in order to provide convenience for shoppers and adapt to changing consumer needs.
Meanwhile, Unilever executives have taken to the airwaves and the press to defend their plans to scrap the company’s dual British-Dutch structure, picking Rotterdam over London as its single headquarters.
The creation of a single holding company based in the Netherlands means that the company will drop out of the FTSE 100 index, forcing UK tracker funds and those with strict UK investment mandates to sell their holdings.
The plans have angered some UK investors. A major Unilever shareholder, Aviva Investors, plans to vote against the plans. David Cumming, the chief investment officer, has urged other Unilever shareholders to follow suit.
In a charm offensive, Unilever’s chairman, Marijn Dekkers, wrote an op-ed in the Daily Telegraph while the chief financial officer, Graeme Pitkethly, made an appearance on BBC radio 4’s Today programme.
Both stressed that the company, which makes a huge range of well-known consumer products such as Dove soap, Persil and Marmite, remained committed to Britain.
Dekkers wrote:
Rest assured that reports of Unilever leaving the UK could not be further from the truth. Two of our three operating divisions at Unilever, which represent 60% of our turnover, will remain headquartered from our offices in London.
We also employ around 7,000 people across the country, which will not change as a result of the board’s proposals.
In fact, simplifying our business is all about allowing our operating divisions to compete and perform even better for the future. And if they perform better that is good news for the UK and it is good news for our shareholders.
Cumming told BBC radio that it looked like Unilever was moving to the Netherlands for better takeover protection, following last year’s failed $143bn takeover approach from Kraft Heinz.
Pitkethly responded by saying “the best form of protectionism is great performance”.
Unilever’s plans will be put to shareholder votes in late October.
The third UK retailer to report figures this morning, Hotel Chocolat has posted a 13% rise in full-year profits. The upmarket chocolatier is pressing ahead with store openings abroad, pushing into Scandinavia, Japan and the US.
The firm reported a profit before tax of £12.7m for the year to 1 July. The upbeat figures sent its shares up nearly 3% to 348.5p.
Elsewhere on the high street, Card Factory has not fared as well. It has blamed weak consumer spending for an 8.9% drop in underlying profits in the six months to 31 July to £29.9m. Like-for-like sales – at stores that have been open at least a year – slipped 0.2%.
Shares in the FTSE 250 company fell more than 7% in early trading, and are now down 5.3% at 176.3p.
The group said it had been selling fewer everyday ranges such as birthday cards, but its Valentine’s Day, Mother’s Day and Father’s Day ranges each produced record sales.
The greeting card retailer still expects to make full-year profits of £89m to £91m, after lowering its forecast in August.
The chief executive, Karen Hubbard, said:
Our like-for-like performance has impacted profitability, as have the ongoing cost headwinds of foreign exchange and national living wage.
Never mind the Brexit contingency plans. Traders clearly like the profit upgrade from Next – its shares jumped just over 9% when the market opened, and are still up 8.6% at £55.52. Marks & Spencer and Primark owner Associated British Foods have also benefited and are among the main risers on the FTSE 100.
The FTSE 100 as a whole has inched up nearly 5 points to 7463.32.
The German Dax and and French CAC are slightly down, while Italy’s FTSE MiB is 0.5% ahead and Spain’s Ibex has risen 0.3%.
In a detailed section on duties, Next warns that stock imported into the UK could end up incurring double duty if its then exported to any country outside the UK. There is an additional risk when goods are sold online and dispatched from the UK to the EU, it said.
Customers will become liable for duty on the selling price of the goods rather than their cost price. This is because the customer would, in effect, be importing the goods at selling price into the EU from outside.
So Next has set up a German company to send goods to EU customers. It explains:
It is likely goods would be sold to our German company from our UK company. Goods would then be deemed to have been imported into the EU by our German company at cost plus a reasonable transfer premium, in the same way as if they had been imported direct from the overseas territory in which they were manufactured.
It is our intention to bond our German warehouse facility so that goods will only incur duty when they leave it and go into free circulation in the EU. This will enable unsold goods that return from Germany to the UK to avoid double duty...
it is our intention to steadily increase the volume of our EU business served through our German warehouse.
The company has also set up a company in Ireland, which will own goods sent from the UK to its Irish stores. This means that goods can be imported into Ireland at a cost (plus a reasonable transfer premium) and will incur very little additional duty.
The Next chief executive, Wolfson, has said in the past that leaving the EU could spark an “economic renaissance” for Britain, by enabling trade deals to be struck in emerging markets and allowing the UK to leave behind swaths of regulation.
However, he has urged the government not to rush negotiations, warning that the economy would suffer from a botched or rushed deal.
Next, seen as a bellwether of the high street, reported a 0.5% rise in first-half profits to £311m in the 26 weeks to 28 July after full-price sales rose 4.5%. However, it warned:
The UK retail market remains volatile, subject to powerful structural and cyclical changes. Many of these headwinds have not abated. As expected, sales in our stores (which now account for just under half of our turnover) continue to be challenging.
We believe the over-performance in the first half was flattered by the unusually warm summer and we remain cautious in our outlook for the rest of the year.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The high street retailer Next has set out its contingency plans for a no-deal Brexit. It highlighted queues and delays at ports as the biggest risk to its business if the UK were to leave the EU without a customs arrangement in place. It also warned of higher tariffs and a further weakening of the pound, which the company is hedging against.
However, the company added that it does not see a “material threat” from Brexit. Next, which is run by Lord Wolfson, who has backed Brexit, said:
It is not yet clear how well prepared HMRC systems, customs and other relevant personnel will be for the upcoming potential increase in workload and data capture.
We believe that the biggest risk to our business is the external risk of UK ports not coping with the additional volume of customs work they would be required to undertake if no changes are made to the UK’s current procedures... We believe that it remains open to the government to initiate changes in the way customs procedures operate and that such measures could eliminate much of the risk to our ports.
The retailer added:
There are significant challenges involved in preparing for a no-deal outcome and we would not want to understate the work we are doing to prepare for this eventuality. However, we do not believe that the direct risks of a no-deal Brexit pose a material threat to the ongoing operations and profitability of Next’s business here in the UK or to our £190m turnover business in the EU.
We are well advanced in our preparations and are setting up all the administrative, legal and physical infrastructure that will be needed to operate effectively if the UK and EU are unable to agree a free trade agreement. We are confident all the necessary arrangements we need to make will be in place by March of next year.
The comments came as Next upgraded its profit forecast after sales were boosted by the long heatwave, but warned that the market remained tough. Its raised its full-year forecast for profit before tax by £10m to £727m, similar to last year’s profit of £726.1m.
The agenda
9.40am BST Bank of England policymaker Gertjan Vlieghe speaks at Imperial College in London
9.10am/11.45am ECB chief economist Peter Praet speaks in London