Fourth Industrial Revolution

The first industrial revolution began in Britain in the late 18^th century with the mechanisation of the textile industry. The second industrial revolution came early 20^th century when Henry Ford ushered in the age of mass production. The third industrial revolution or the digital revolution, saw the advancement of technology from the 1980’s onwards, with analogue electronic and mechanical devices progress to the digital technology available today.

However, some major UK manufacturers are suggesting we are on the brink of a fourth industrial revolution or 4IR, bringing together the benefits of robotics, 3D printing and artificial intelligence. Siemens UK, Rolls Royce, GKN, IBM and other manufacturers along with academics from the universities of Cambridge and Newcastle have produced a report to help the government’s industrial strategy plans. Proposals include creating training allowances for individuals, financial incentives for businesses to invest in digital technologies, backing for digital networks and a commitment to establishing approved standards for training, cyber security awareness and the protection of data.

A government commissioned report suggests the adoption of digital technologies could deliver a 25% improvement in industrial productivity by 2025. It is estimated that 4IR could unlock £445bn for the UK over the next decade. However, robotics and artificial intelligence will displace some jobs. Up to 1 million existing workers in the industrial and manufacturing sector may need to be upskilled. It is hoped that 4IR could create an additional 175,000 jobs in IT, analytics and research and development. The proposals, if adopted could contribute an additional 3% to annual growth in UK manufacturing.

One message is clear, companies need to adapt to survive.

What have we been watching?

The previous week it was central bankers in the spotlight. Last week it was politicians. Donald Trump moved briskly to distance himself from the indictments of two former campaign aides Paul Manafort and Richard Gates, saying that their alleged wrongdoing occurred years ago and that there was ‘no collusion’ between his campaign and Russia. However, the FBI also revealed that George Papadopoulus, hardly a household name, had pleaded guilty to lying to FBI investigators about his contacts with Russia nationals and connected individuals while he was serving as a foreign policy advisor with the Trump campaign.

Meanwhile, in the UK, Westminster is having to confront allegations of sexual harassment after newspaper reports detailing misconduct by some MPs. Theresa May’s minority government suffered a heavy blow with the resignation of defence secretary Michael Fallon who said his behaviour had ‘fallen short’ of the ‘high standards’ expected of the armed forces. Theresa May is reported to be facing a backlash from some Conservative MPs after she appointed chief whip Gavin Williamson as defence secretary, even though he has never spoken as a minister in the house of commons’. One prominent backbencher said ‘Many MPs are saying it’s her biggest and probably last mistake’. The Labour Party has suspended an MP whilst it carries out an investigation. Meanwhile, the Conservative party is preparing for sudden by-elections in case any of its MPs are forced to step down.

Whether these political developments in the US and UK become a distraction during US tax reform and Brexit negotiations respectively, remains to be seen.

Despite the political uncertainty, US management teams appear pretty upbeat judging by the pick-up in corporate activity. Last week saw $22bn of mergers announced while a further $150bn worth of deals are believed to be under consideration according to media reports.

On Brexit, there appears to be more signs that the UK may partly concede to break stalemate in talks. Brexit Secretary David Davis noted ‘the withdrawal agreement will probably favour the EU in terms of things like money and so on’. The EU’s chief negotiator Barnier offered some support saying ‘I’m ready to speed up negotiations’. Meanwhile, the chief economist of Nationwide has warned that ongoing uncertainty around Brexit and the rights of EU citizens, once the UK leaves the EU, may lead to a slowing in the housing market.’ He estimates that international migration accounted for two-third of England’s population growth between 2001 and 2015 and Brexit could impact the number of residents privately renting.

In the UK, the Bank of England, as widely expected increased interest rates for the first time in a decade from 0.25% to 0.5%, but said that any future increases would be at a gradual pace and to a limited extent. The deputy governor of the BoE said this might mean about two or more interest rate increases over the next three years. Sterling dropped below $1.31 and UK equities rallied as markets believing that all the BoE is doing is taking back the emergency cut made after EU referendum.

UK manufacturing activity made an impressive start to the final quarter of 2017 as increased inflows of work encouraged firms to increase production once again. Activity in the services sector which accounts for more than two-thirds of the economy, increased ahead of expectation in October. UK construction activity unexpectedly grew a little in September but confidence among firms in the sector fell to a five-year low. Nationwide reported annual house price inflation of +2.5% to October. It does not view the interest rate hike as being that material on the housing market as the share of variable rate mortgages has fallen from 70% in 2001 to a record low of 40% currently.

European economic growth increased by 0.6% in the third quarter of 2017, or by 2.5% on a seasonally adjusted annualised basis. However, low inflation remains a challenge for the European Central Bank which ‘reflects very moderate wage dynamics in several economies, which are a consequence of a still large labour-market slack’.

In the US, consumer confidence rose to a record seventeen-year high. The US Fed continued to signal that gradual interest rate rises lie ahead but did not offer any explicit indications as to when the next move will come. Jay Powell was named by President Trump as his nominee to serve as the next chair of the Federal Reserve. He will replace Janet Yellen in February 2018 subject to Senate approval. As a ‘centrist’, he is viewed as the continuity candidate. Meanwhile, the Republicans unveiled the 429-page bill to deliver Trump’s promised tax cuts. This aims to slash the corporate tax rate from 35% to 20% and would be the biggest overhaul of the US tax system since 1980. The Ways and Means Committee will begin formal consideration of the bill this week before the full House can vote on it. It must also pass the Senate where Republicans hold a slimmer majority and earlier this year failed to approve a major healthcare overhaul sought by Trump.

Remarks from OPEC and Russian officials signalling support for an extension to production cuts remains supportive of Brent crude which moved above $62.

Finally, President Trump’s Twitter message briefly vanished last Thursday but has since been restored. A Twitter employee is believed to have deactivated the @realdonaldtrump account on their last day in work. This is not fake news!

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