Since the Brexit vote most financial commentators have been surprised by the strength of the British economy, with the economic figures constantly outperforming expectations. However, this morning figures show that consumer spending may be starting to slow. In February the UK Services Purchasing Managers' Index (PMI) was below the market consensus of 54.1 at 53.3, down from 54.5 in January. This will be food for thought for the Chancellor of the Exchequer Philip Hammond as he prepares for both his and the UK’s first post Brexit budget.
Earlier this week there were reports in the UK press that Hammonds budget calculations were made easier due to the stronger post–Brexit numbers. According to the Resolution Foundation, the Chancellor has been handed a near GBP30bln windfall which will bring down public borrowing to around GBP56bln this fiscal year: approximately GBP12bln lower than Office for Budget Responsibility’s forecast in November. Although, seeing as Hammond has already stated it is his intention to run an absolute surplus by the end of this parliament there is little hope he will open the purse strings.
Also, we saw SNAP Inc’s IPO (Snapchat) last night on the New York Stock Exchange. The initial public offering price was at USD17 per share. However, as soon as shares became freely available they took flight. They closed on the first day of trading up 44% at USD24.48 giving a market value of over USD28bln; at one point they traded at over USD26, at which point the company was worth more than USD29bln. All this on the back of a company that has an estimated 110mln users and last year posted a net loss of over USD514mln. For SNAP to attain a price/earnings ratio of 22, in line with the S&P 500 average, it would need annual earnings of USD1.1bln; this would equate to profits of 10 bucks per user rather than the 5 dollars it is currently costing them;. The company has commented that it ‘may never achieve or maintain profitability’. With fierce competition, from the likes of Facebook (who offered USD3bln for Snapchat in 2013), this sector has the potential to change and influence the lives of billions of us; whether they turn a profit doing so is an entirely different question.