A report from the Chartered Institute of Patent Attorneys reveals that UK firms file patents in key markets like Europe and China at rates up to 40 per cent lower than those of French and German businesses.

Findings from the World Intellectual Property Organisation further indicate that the UK lags behind leading economies in patent filings, placing Britain between 16th and 20th in its patent-related Global Innovation Index.

This concerning pattern implies that British companies and innovators are not adequately protecting their inventions and discoveries on a global stage, according to the institute, the UK’s largest intellectual property organisation.

The Society of Chemical Industry has issued a warning that UK firms may be forfeiting billions in revenue, allowing other nations to lead in science and technology applications. “The low rate of UK patent filings is a significant signal that our science-driven industry is struggling,” said Sharon Todd, the society’s chief executive. “We risk transferring billions of potential value to international competitors.”

The new government is urged to collaborate with the industry promptly to address these patent challenges. “The UK cannot afford to remain passive while other economies take the lead in green technology, new medicines, and food production,” Todd emphasized. “We must also advance our economy to create high-skilled jobs and ensure the supply security of essential products.” The society has proposed a “science and innovation growth council” composed of industry experts to advise the government on policies to foster innovative industries.

Matt Dixon, president of the Chartered Institute of Patent Attorneys, stated that the institute is “dedicated to partnering with the government to tackle the UK’s patent issues. It’s crucial for both businesses and government to collaborate closely to prevent missing out on the substantial economic opportunities that intellectual property and patent protection offer.”

Established in 1882, the institute is the largest intellectual property organization in Britain, boasting over 4,500 members, including 1,100 trainee patent attorneys. Its members assist small to medium-sized enterprises, universities, and large corporations in safeguarding their innovative technologies globally.

A pivotal consideration is whether the disappointing increase of 114,000 jobs in July was merely a temporary consequence of Hurricane Beryl or indicative of a broader downturn in the labor market. Economists at Lloyds Bank suggest it may be a combination of both factors, predicting a rebound with the August job numbers reaching 195,000, surpassing the consensus expectation of 163,000.

In addition to the non-farm payroll figures, analysts will closely examine wage growth and employment data. Lloyds expects to see a monthly wage increase of 0.3 percent and a slight dip in the unemployment rate to 4.2 percent from July’s 4.3 percent.

Upcoming Reports

On Thursday, Ashtead Group will announce its half-year results, providing insights into rental revenue trends. The FTSE 100 plant hire company, which has been in the news regarding a potential shift in its primary listing from London to New York, reported a 10 percent rise in rental revenues to $9.6 billion last year. This was a decline compared to the previous year’s 22 percent growth and followed adjustments to its revenue forecasts due to reduced demand from film and television sectors and a relatively quiet season for wildfires and hurricanes.

Investors will be looking for stability in Ashtead’s projected rental revenue growth of 5 to 8 percent, with optimism stemming from strong performance in Canada balancing lesser results in the UK and the U.S.

Interim reports are anticipated from Ashtead, Oxford Nanopore, Midwich, and STV Group, while trading updates will be provided by DS Smith and Watches of Switzerland.

Wednesday Insights

Barratt Developments, having issued a trading update in mid-July, will report its annual results soon. The housebuilder recorded sales of 14,004 properties in the year ending June, marking its lowest annual output since 2013 (excluding the pandemic-impacted 2020). Following stronger-than-expected sales in spring and summer, Barratt anticipates its pre-tax profit to exceed the City analysts’ estimate of £321 million, albeit still lower than the previous year’s performance.

Notably, this reporting period will represent Barratt’s first results since finalizing its acquisition of Redrow, solidifying its status as the UK’s leading housebuilder.

Barratt had previously maintained a cautious outlook, suggesting a further reduction in housing construction in the upcoming year. However, with ongoing efforts from Labour to reform the planning system and signs of a market recovery, investors may hope for increased optimism.

Finals from Barratt Developments are anticipated, along with interims from CAB Payments, Cairn Homes, Direct Line, Eurocell, Hilton Food, and Shield Therapeutics. Economic updates will include the S&P Global UK Services PMI.

Thursday Developments

Lloyd’s of London faces a challenging comparison with its prior strong annual results as it prepares to release half-year figures. The previous year marked the insurer’s most robust performance since 2007, driven by a rise in commercial insurance premiums and underwriting profits soaring from £2.6 billion to £5.9 billion. However, overall premiums fell short of a target of £56 billion, attributed to lower business volumes, particularly in the cyber insurance sector.

In light of the recent decline in UK retail sales and shop prices, Currys will need to demonstrate whether it remains on track for a 10 percent profit increase for the year. Analysts at Panmure Liberum express optimism about recovery signs, particularly in light of strengthened sales in large-screen televisions during the Olympic Games period.

Among the finalists are Ashmore and Genus, while interim reports are awaited from Bakkavor, Funding Circle, International Public Partnerships, Lloyd’s of London, Vistry, and WAG. Trading updates are also expected from Currys and Safestore, with economic updates on SMMT UK monthly car registrations.

Friday Highlights

On Friday, economic data will include the U.S. employment report and the Halifax house price index.

Following Sir Keir Starmer’s recent speech, numerous analysts scrutinized the party’s position: How can Labour, intending to increase taxes on middle-income earners, truly advocate for wealth creation? Moreover, how do we expect economic growth when those generating the most wealth bear the brunt of fiscal measures?

What seems overlooked, however, is the potential adverse effect of these comments on a crucial group: international investors that the government aims to attract.

Rachel Reeves has been actively promoting the UK as a prime investment destination throughout major financial hubs worldwide. The success of the Chancellor’s forthcoming international summit relies heavily on the investors she has engaged not just showing interest but also committing funds.

Labour’s aspirations depend on the belief that, despite challenging public finances, the UK remains an appealing prospect for investments. The narrative from the government suggests that while current fiscal tightening causes immediate discomfort, it is essential for fostering a stable and inviting economic landscape in the future.

Yet, doubts linger regarding whether investors accept this viewpoint. There is a risk that the pessimistic economic outlook may deter the very capital Labour seeks to attract.

Last week’s fluctuations in UK banking stocks, propelled by concerns both genuine and perceived, highlight the fragility of market trust and how swiftly investors can withdraw at the mere suggestion of forthcoming tax increases.

Labour’s commitment to avoid adjustments in VAT, national insurance, or income tax in the upcoming budget limits their options, leaving them to explore the possibility of increased taxes for high earners and corporations.

Nonetheless, Starmer seems to overlook a vital correlation between domestic growth and corporate success. The profitability of businesses and the overall economy are significantly influenced by consumer confidence and spending. While pledging to maintain current corporation tax rates is commendable, without robust household finances and consumer demand, the outcomes may still lead to profit squeezes for UK companies.

Based on discussions with prospective investors, it’s evident that diverting funds into a market with sluggish consumer growth and an anxious populace is unattractive. Furthermore, any hikes in capital gains tax could prompt major international investors to reconsider attending significant investment events.

Austere fiscal policies are not the sole route available for the UK to pursue. Other European economies are facing similar fiscal challenges yet are adopting measures that prevent additional pressure on households, particularly post-Covid. For instance, despite facing recession and increasing deficits, Germany has recently proposed €23 billion (£19 billion) in income tax reductions to assist families navigating inflation.

The UK’s dominating fixation on public finances is not just distracting; it is detrimental to attracting investments. A cautionary example is evident in China, where rigorous fiscal policies aimed at sustainable growth have led to widespread hardship among families due to minimal government aid and a struggling property market. This approach led to significant capital outflows, the highest recorded since 2016.

While Starmer’s policy choices may appear constrained, a less pessimistic narrative could be beneficial. Although the UK might require financial realignment, pitching a vision of economic renewal will serve us better on the global stage.

In fact, there are grounds for optimism: the UK is currently the fastest-growing economy in the G7; key indicators like GDP, unemployment, and inflation are trending positively. Emphasizing these strengths would resonate with investors evaluating the UK and prevent the alienation of the international capital that is vital for economic growth.

Striking a balance between maintaining fiscal discipline and fostering an inviting investment atmosphere poses significant challenges for the UK. The necessity of balancing budgets implies that taxes must rise for certain groups. However, austerity, regardless of its nomenclature, is often perceived negatively, and international investors are acutely aware of these sentiments.

Seema Shah serves as chief global strategist at Principal Asset Management.

These packaged accounts typically charge monthly fees ranging from £10 to £40, offering perks that can save hundreds of pounds annually if utilized effectively.

However, recent data from Fairer Finance highlights that some fees have surged by as much as 16% over the past two months. NatWest and Royal Bank of Scotland (RBS), for example, raised the monthly fee for their Premier Reward Black accounts from £31 to £36 in June, pushing the annual cost from £372 to £432. These accounts provide worldwide travel and phone insurance, European breakdown cover, fee-free foreign spending, a concierge service for bookings, and access to over 1,000 airport lounges.

Additionally, these accounts offer £10 monthly cashback if you have two direct debits and log into your app. These services are available to NatWest or RBS premier customers, who must have either £100,000 in income, savings, or investments, or a £500,000 mortgage.

At the start of July, Lloyds Banking Group also increased fees for its packaged accounts under Lloyds, Halifax, and Bank of Scotland. For instance, the Silver, Club Lloyds Silver, and Silver Vantage accounts, offering European travel insurance, UK breakdown cover, and phone insurance, saw fees rise from £10 to £11.50 per month (£138 annually).

Halifax’s Ultimate Reward account, which includes worldwide travel insurance, UK breakdown cover, phone and home emergency cover, fee-free foreign spending, and a choice of monthly rewards such as £5 cashback, cinema tickets, or magazines, has gone up by £2 per month to £19 (£228 annually).

Lloyds introduced fee-free foreign spending for some of its packaged accounts. Both Lloyds and NatWest cited rising costs in providing benefits such as insurance and airport lounge access.

James Daley from Fairer Finance remarked, “Packaged bank accounts can offer great value if you use all the benefits. But they can also be a colossal waste of money if you don’t.”

He also noted that recent price hikes might reduce the value for customers not fully utilizing the perks.

According to the Financial Conduct Authority (FCA), there were 12.7 million packaged bank accounts in 2020, and 26% of people surveyed in 2022 had a fee-paying account. Among them, 13% felt they weren’t getting good value for their money.

Since 2013, regulations require banks to send annual statements detailing what’s included in these accounts. This measure followed complaints that customers were sold packaged accounts despite not qualifying for certain insurance perks.

Daley added that the FCA’s consumer duty rules obligate banks to ensure their customers are utilizing the services for which they are paying.

“It’s no longer acceptable for banks to sit back and let their customers get poor value from these accounts,” he said, urging banks to consider downgrading customers to cheaper, lower-frills alternatives if benefits go unused.

If you primarily use travel insurance or phone cover included with your account, it might be more cost-effective to purchase individual policies instead of paying the approximate £140 for a packaged account.

According to GoCompare, insuring the latest iPhone 15 with 128GB storage averages £72 per year. A worldwide travel insurance policy costs around £112 annually, and breakdown cover averages £34.

Check whether you need these extra policies. Sam Richardson from Which? noted, “You might already be getting these benefits through other means, like home insurance covering mobile phones and gadgets, or car insurance including breakdown cover as standard.”

If travel insurance is a key perk, scrutinize the policy details to ensure coverage for specific needs, such as pre-existing medical conditions or ski trips.

Be mindful of age limits: Lloyds’ Silver account doesn’t cover those over 65, while NatWest’s packaged accounts exclude those over 70 unless an additional £75 yearly fee is paid.

Approximately 30 percent of open-ended funds registered in the UK are now investment vehicles that mirror the performance of stock markets, rather than attempting to outperform them. This figure represents a significant increase from 19 percent five years prior, as reported by Morningstar Direct, a leading research platform. In contrast, open-ended passive funds account for about 24 percent of the total global market, excluding figures from China and India.

The surge in popularity of passive funds can be attributed to their lower cost compared to actively managed options, often featuring annual management fees typically under one percent.

In the UK, more than three-quarters of actively managed, sterling-denominated equity funds failed to exceed the performance of the FTSE 100 index over the year ending June 2023, based on findings from S&P. On a global scale, a staggering 95 percent of actively managed funds did not keep pace with market performance.

Warren Buffett, one of the most esteemed investors worldwide, remarked as far back as 1993 that investing in an index fund could enable an average investor to outperform the majority of investment professionals, stating, “By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”

Among the most cost-effective avenues for adopting a passive investment strategy are exchange-traded funds (ETFs). According to Morningstar, including these funds, passive investments constituted around 30 percent of total investment funds in Britain, compared to 29 percent in Europe and 52 percent in the United States.

In a landmark occurrence last year, the assets held in American passive funds reached $13.3 trillion, overtaking the $13.2 trillion in active funds for the first time in history, according to Morningstar.

Nevertheless, some analysts caution that the ascendance of passive investing may pose systemic risks, potentially inflating market bubbles. Unlike active investors who make decisions based on company valuations, passive investors invest based on market capitalization, which could lead to an excessive concentration of capital in the largest firms. This phenomenon has been notably observed within the S&P 500, where the top ten companies represent nearly one-third of the index’s total value.

Consequently, share prices of major fund management companies in London have faced challenges in recent years. Schroders has seen its market value decline by over one-third during the past five years, with CEO Peter Harrison remarking in July that the UK asset management industry has become a “deeply unfashionable place.” Other competitors, such as Liontrust Asset Management and Abrdn, have also experienced significant drops in share prices, recording declines of 26 percent and 44 percent, respectively, during the same timeframe.

The notable allure for investors lies in Aviva’s attractive 7 percent dividend yield, raising questions about the sustainability of this income source.

Founded from the merger of Norwich Union and CGU in 2000, Aviva has historically been favored in the market largely due to its dividend strategies. However, following Dame Amanda Blanc’s appointment as CEO in 2020, investor satisfaction waned due to stagnant share price growth that saw a total return of 85 percent from 2010 to 2020, underperforming the FTSE 100’s 113 percent.

Since then, Blanc has initiated a transformation of the company’s business model. Since 2021, Aviva exited markets such as Italy, Vietnam, France, Turkey, and Poland, along with a joint venture in Singapore, generating over £8 billion in proceeds—most of which has been directed back to shareholders through dividends or buybacks. Now, the company primarily focuses on operations in the UK, Ireland, and Canada, where it holds about 8 percent of the property and casualty insurance market.

Aviva is structured into three main segments: retirement, health, and insurance, with the majority of its profits stemming from retirement products like annuities. The company’s extensive scale enables effective cross-selling; nearly five million customers hold multiple Aviva policies, while 40 percent of new sales are to existing clients across individual and corporate sectors.

The Dividend Attraction

As one of the preferred income stocks in London, Aviva has delivered a 7.2 percent yield over the last year, positioning it near the top of the FTSE 100, which collectively yields 4.4 percent.

Despite a downturn in dividend cover— a ratio of earnings per share to dividends declared—due to recent earnings fluctuations, it remains above a multiple of 1. The company is positioned to capitalize on its investment portfolios, particularly bonds and mortgages, where rising interest rates have positively impacted its financial resources. Aviva’s Solvency II ratio, a crucial benchmark for insurers, reported 205 percent at the end of June, well above the desirable threshold of 180 percent.

Moreover, its return on equity has shown improvement, ending the first half of the year at 12.4 percent, an increase from 11.5 percent a year prior.

Blanc’s strategy aims to elevate the annual dividend by mid to single digits while advancing the next phase of the company’s rejuvenation through capital-light growth, emphasizing its wealth management, health, protection, and general insurance operations. With about £180 billion in assets under management, the wealth division is increasingly winning corporate pension mandates, having added 470 new schemes last year.

The target to boost operating profits in this sector from £100 million last year to £280 million by 2027 appears realistic. Overall, Aviva aspires for its capital-light segments to contribute 70 percent of a planned £2 billion operating profit by 2026, rising from 55 percent reported at the end of June.

Additionally, the company’s health insurance and protection product growth will benefit from demographic shifts and rising demand for private medical services, as evident in the 1.2 million UK residents currently accessing Aviva’s private medical services—a rise of over 100,000 from the previous year.

Recently, Aviva also acquired the insurance platform Probitas for £242 million, enabling re-entry into the Lloyd’s of London market, known for handling specialized risks.

If Aviva successfully enhances these capital-light areas, a correspondingly higher return on equity is anticipated, potentially climbing from about 15 percent at the close of last year to 19 percent by 2026. This growth should subsequently bolster profits, expand cash buffers, and facilitate increased dividends for shareholders.

Assessing The Valuation

Although Aviva does not hold the title of the highest-yielding insurer in London—Legal & General is projected to yield around 9 percent—it is trading at a minor discount relative to some competitors on a price-to-book basis, which contrasts market value to book value (total assets minus liabilities). Currently, Aviva shares are at a ratio of 1.6, compared to Legal & General at 3.9, Allianz at 2.1, and AXA at 1.8.

This price discount raises the possibility of future acquisition interest; rumors surfaced late last year regarding potential takeover considerations, including inquiries from Allianz.

Prospective acquirers may find much to appreciate in Aviva. Achieving a targeted annual operating profit growth of 11 percent, while ambitious, appears to be on track, as evidenced by the recent half-year report displaying a 14 percent increase in adjusted operating profit to £875 million, surpassing expectations.

This analysis had previously rated Aviva as a buy in the spring of the previous year. Since then, the shares have appreciated, delivering a 36 percent total return—substantially exceeding the FTSE 100’s 15 percent return. Given its leading market position, diverse offerings, and solid growth trajectory supporting dividend increases, Aviva shares may still be undervalued.

Advice: Buy

Conclusion: Shares appear undervalued in light of an optimized model and clear growth pathway.

OpenRent, which assists thousands of landlords nationwide in finding tenants, has decided to pull all its listings from Rightmove by the end of this month when its current agreement expires. The company has already removed any Rightmove references from its marketing materials.

Despite efforts to negotiate a new contract, Rightmove announced on Tuesday morning that “conditions for OpenRent’s ongoing Rightmove membership could not be agreed.”

OpenRent, an online lettings agent with an equivalent presence of 700 “branches” across the UK, contributes approximately 8 percent of the rental homes listed on Rightmove.

Given its size, OpenRent has previously secured lower rates from Rightmove, a situation that has been a source of frustration for smaller clients.

Rightmove has warned that OpenRent’s exit will result in a 3 percent decrease in its overall membership this year compared to last year, despite earlier projections of a 2 percent increase shared with shareholders.

• Rightmove poised for a rise in house sales as mortgage rates decrease

Even with OpenRent’s departure, Rightmove anticipates a revenue growth of between 7 percent and 9 percent this year, alongside a 70 percent profit margin—figures consistent with its previous forecasts.

The FTSE 100 company also indicated that its average revenue per advertiser would climb by £90 to £100 per month this year, an increase from the previous best estimate of £85. This uptick is primarily because OpenRent and other lettings agents generally pay less compared to estate agents and developers.

Despite this optimism, Rightmove shares fell by 23p, or 4.3 percent, closing at 524p on Tuesday.

Rightmove remains the primary destination for UK house hunters, capturing more than 80 percent of the online home-browsing time spent by Britons.

However, the market reacts sensitively to any indications that Rightmove’s stronghold is under threat, especially now that OnTheMarket—a smaller property search site—has been acquired by US property data giant CoStar, which aims to challenge Rightmove’s dominance. OpenRent does not currently list on OnTheMarket but uses Zoopla and PrimeLocation instead.

Sean Kealy, a consumer analyst at Panmure Liberum, described OpenRent’s decision not to renew its Rightmove contract as “disappointing” but noted it is “unlikely to indicate a broader competition-related weakening in Rightmove’s pricing environment.”

He suggested that the busy lettings market means agents have less dependence on Rightmove, as tenants desperate for rentals are likely to explore all platforms, even more affordable ones.

• Can you really trust property listings?

Data from the Office for National Statistics indicates a significant 16.8% decline in deals, dropping from 463 to 385 during the three months leading up to the end of June. The market for mergers and acquisitions saw a sharp decrease in monthly transactions, with totals falling from 148 deals in April to just 93 in June, the lowest monthly tally since May 2020.

Total transaction values also experienced a downturn, decreasing from £11.8 billion to £13.8 billion compared to the first quarter, as both domestic and international deal values dropped by £1 billion each.

Among the domestic engagements, notable transactions included Compass Group’s acquisition of CH&CO for £475 million. In the international sphere, US firm GXO Logistics acquired logistics company Wincanton for £762 million.

Caroline Rae, a partner at law firm Herbert Smith Freehills, remarked, “The UK mergers and acquisitions landscape for the second quarter of 2024 is underwhelming yet unsurprising, largely due to the political uncertainties related to the impending general election. Nevertheless, there is cautious optimism that activity may rebound towards the year’s end as the economic outlook stabilizes.”

Katherine Moir, a partner at Clifford Chance, expressed expectations for a rise in inward M&A activities as economic conditions normalize. She noted that future transactions may be driven more by strategic goals rather than opportunistic buys, especially from foreign investors eyeing the UK’s long-term growth potential.

Recent proposals by the Labour government for tax increases have sparked rumors of a surge in deal finalizations to circumvent potential hikes in capital gains tax on business sales.

James Wild, head of M&A at consulting firm RSM UK, stated, “Business owners are now focused on the impending autumn budget and the potential increase in capital gains tax, prompting sellers to expedite deals. Consequently, we anticipate a genuine uptick in deal-making activity in the latter half of the year.”

The deal will increase Sainsbury’s retail space by 235,000 square feet, strategically positioning the new stores in “key target locations” throughout England, Northern Ireland, and Scotland.

With an estimated gross investment of £130 million, the acquisition is set for completion early next month.

The new supermarket locations will include sites in Sutton Coldfield, Bromsgrove, Cromer, Londonderry, Fareham, Inverurie, Lowestoft, Newark, Omagh, and Rugby. This move is expected to bring Sainsbury’s within a ten-minute drive for nearly 400,000 additional customers.

This acquisition follows the news that Hilco Capital, which purchased Homebase for just £1 in 2018, is considering selling the struggling DIY chain. Hilco is reportedly in discussions with several potential buyers, including competitors The Range and B&M European Value Retail.

Simon Roberts, CEO of Sainsbury’s, stated, “Sainsbury’s food business continues to go from strength to strength. We want to build on this momentum, which is why we are expanding our supermarket presence. Our goal is to be the first choice for customers seeking food, and these new stores will enable us to serve even more communities across the UK with our best offerings.”

As the second largest grocery retailer in the UK with a 15.3 percent market share, trailing only Tesco, Sainsbury’s anticipates that the new locations will deliver strong financial returns, expecting a return on capital employed in the low teens, exceeding their capital costs.

The first of the newly converted stores is projected to open next summer, with all ten stores expected to be operational by the end of 2025. Currently, Sainsbury’s operates over 600 supermarkets and around 800 convenience stores, processing nearly 250,000 online orders weekly.

In addition to expanding its presence, the conversion is expected to generate approximately 1,000 jobs. Sainsbury’s has committed to guaranteeing interviews for Homebase employees who may be affected by store closures.

This strategic move aligns with Sainsbury’s “food first” strategy aimed at consolidating its clothing and general merchandise units, which have faced challenges. The retailer announced in March plans to eliminate about 1,500 positions as part of a broader initiative to streamline operations and save £1 billion in costs over the next three years. This realignment is part of Sainsbury’s “next level” strategy to adjust business size and increase food space across 180 stores by reallocating areas currently used for non-food items.

Retail analyst Clive Black from Shore Capital praised the initiative, noting, “I am very impressed by the progress of Sainsbury’s grocery operations under Simon Roberts, evident in profit advancements and market share growth. This move should enhance medium-term earnings and cash flow, reflecting Sainsbury’s commitment to controlled growth and improved returns.”

In the first quarter of the fiscal year, Sainsbury’s reported a 2.7 percent increase in like-for-like sales, compared to a much higher 9.8 percent increase in the same quarter last year. Grocery sales decreased to 4.8 percent from 7.3 percent in the previous quarter, primarily due to easing inflation. The Argos division experienced a decline of 6.2 percent in sales.

Sainsbury’s shares rose by 1.5p, or 0.5 percent, closing at 290p.