Despite some positive economic data in the run up to today’s Budget, the Chancellor has reinforced his steady approach while making some small but significant pro-business adjustments, according to accountancy firm, Menzies LLP.

Business rates

The Chancellor has announced a £600 a year cap on business rates for smaller retailers that stand to lose the small business rate relief. Local authorities are also being given a £300 million pot to support local business.

“The Chancellor has acknowledged that the business rate systems needs fundamental reform and has promised to address this in time. However, in the short term, this cap is not enough and will only deliver limited savings for SME businesses. This will disappoint those expecting big rates increases.”

Self-employment

In the interests of ‘fairness’, the Chancellor has opted to increase National Insurance Contribution rates payable by self-employed workers to 11% by April 2019.

“Care needs to be taken to ensure that self-employed workers aren’t unduly disadvantaged. For this reason, the consultation announced to take place this summer is welcome. In particular, employers will also need to be reassured that they will still have access to this valuable and flexible employment pool.”

Tax-free dividends

The Chancellor has announced plans for the tax-free dividends allowance to reduce from £5,000 to £2,000 in April 2018.

“Before 2016, basic rate tax payers paid no tax at all on dividend payments. Since then, a tax liability has been introduced in stages; first with an exemption on the first £5,000. Now this exemption has been reduced to £2,000, which suggests it could even be removed altogether in time.

“This is a stealth tax on basic rate tax payers. It will also hit employees of companies that encourage wider share ownership and make it harder for employers to create meaningful incentives.”

Brexit negotiations

The Chancellor stopped short of doing anything further on Corporation Tax, which is planned to decrease to 17% by 2020.

“Corporation tax was mentioned several times in the Chancellor’s Statement and this is probably because the government is considering using it as part of Brexit negotiations. Further measures to reduce the administrative burden of R&D tax relief could also be used in this way.”

Apprenticeships and technology training

The Chancellor is intending to go ahead with the introduction of the Apprenticeship Levy in April 2018 in its current form. He also announced the introduction of T-Levels; new, skills-focused qualifications to be attained through the further education system.

“The introduction of T-Levels is good news but it will be some time before any benefit is felt by employers. It means that 13,000 qualifications will be replaced by just 15 and this will certainly bring greater focus, which will help employers to understand and recognise these new qualifications.”

(Source: Menzies LLP) 

Despite finishing 2016 reasonably strongly, the outlook is bleak as the weak pound continues to push up inflation. The UK risk outlook is expected to deteriorate still further from the two downgrades made since the EU referendum, and although uncertainty looms, the immediate impact of the vote has already taken shape. But what about its impact in the long term?

To answer the question about what Britain’s industries, markets, and sectors beyond financial services will be affected in the long run, Finance Monthly has heard ‘Your Thoughts’, and formulated a rundown of your expert opinions on what to expect months, even years from now.

Charles Fletcher, Head of Analysis, Cogress:

We’ve now entered the month Theresa May pledged to trigger Article 50 and initiate the UK’s exit from the European Union (EU). This means it’s time to critically assess the long-term impact of Brexit on the UK’s property market. The shocking result of the 2016 June referendum introduced a greater degree of uncertainty to the UK economy and property market. The weakened sterling and rising consumer inflation combined with the higher stamp duty tax has meant buyers, investors, and developers are exercising more caution.

Over the next few years, weaker economic growth and increasing pressure on spending power will undoubtedly dampen some housing demand and consequently, lower house price growth rates. It’s hard to predict what the long-term effects of Brexit without knowing the kind of trade deal we secure with the EU. However, that’s not say there aren’t already signs giving us an indication of what the future of the property market will look like. In fact, the latest Halifax House Price Index showed just how resilient UK property prices have been in the face of multiple tax changes and the looming Brexit. There’s good reason to be cautiously optimistic about what the state of the property market ten years on from Brexit.

Firstly, low levels of supply will continue to buoy housing prices and stoke buyer demand across the UK. People looking for better yields and investments will look for new locations as business slows in central London. This means we’ll see greater interest in areas & cities outside inner London like Oxford, Cambridge, Manchester, and Bristol. Compounding this is the vulnerable, depreciating pound that has made the exchange rate on UK property very favourable for foreign buyers in China and the Middle East. Even if domestic and EU buyers remain indecisive about whether to dive into the property market, many other foreign buyers see central London and other UK cities as stable property assets in the long-term.

We have also heard overblown fears over the number of banking and business jobs that the country will lose when we exit the EU. The UK remains one of the top three cities to invest in (behind the US and China), partly attributed to London’s global position as a leading business and cultural hub. While Brexit may have some influence, there is no evidence to suggest that London’s position is likely to change in any dramatic fashion over the next ten years. As the indicators for our nation’s economy continue to be strong, we will see the same in the property market.

While 2016 made clear the prediction game is never certain, the strong fundamentals of the UK’s property market will help it navigate the short-term volatility Brexit will bring to our economy. Meaning Brexit is actually an opportunity for buyers & investors willing to take the long-term view on a market that has historically been the nation’s most resilient in times of turbulence.

Jim Prior, CEO, The Partners:

Brexit has not yet happened and its terms are currently completely unknown so it’s impossible to predict how long its effects will last. What we may be able to predict, however, is the effect of the period of post-referendum, pre-Brexit limbo that we are in and likely to remain in for some years.

On that, although there are good arguments to the contrary, I am choosing to take an optimistic view. I predict that in the next few years, British businesses will act with caution but will find themselves periodically surprised by the resilience of the economy and the enthusiasm of the British consumer and, in that light, will be sufficiently reassured to invest more then they currently expect to and will find growth and profit ahead of forecast.

Beyond that, as elections take place across Europe and the Donald continues to tear up the US rule book, Britain may find itself in the ironic position of enjoying a period of greater certainty than other major nations because our decision is made and our government is stable – thanks to Jeremy Corbyn’s counter-productive efforts there’s virtually no chance of a change of government here – whereas theirs are anything but. That could be good for inward investment in the short and medium term even if longer-term doubts remain.

And the long-term is by no means guaranteed to be bad: If Britain can indeed prosper calmly through the next couple of years while other economies thrash around in the political sea, we may then find that our negotiating position strengthens, and the deals we strike might be better than we initially thought. I still hate the idea of Brexit at an ideological level but, in support of democracy and national self-interest, I am looking positively ahead.

Markus Kuger, Senior Economist, Dun & Bradstreet:

A post-Brexit world is not something that is easy to predict. Currently, Pound Sterling fluctuations, inflation surges and political uncertainty are all pieces of a jigsaw that are very difficult to piece together. The consensus of an uncertain picture is therefore quite bleak, but it’s important for businesses to remain calm in this period of transition.

However, despite business’ uncertainty in a post-Brexit era, there has been cause for optimism. Global mergers and acquisitions haven’t slowed (the recent news that Sky PLC has agreed to a £18.5bn takeover by 21^st Century Fox supports the claim that businesses are willing to continue in the same vein) and there has been a surge in manufacturing exports since the vote to leave the EU. However, the outlook has been gradually deteriorating since the start of the year; sales figures in the retail sector fell in December and January, while Purchasing Managers’ Indices in the manufacturing and services sectors have eased, yet still stand comfortably in growth territory.

Regardless of this, the full ripple effect of Britain’s exit from the EU has not yet been felt for one clear reason; Britain hasn’t actually left yet. But what happens after could shape the future of the country.

From a trade perspective, tariff-free access to the EU’s common market could be impacted if talks break down about a free trade agreement and World Trade Organisation (WTO) trading rules are implemented instead. This change in tariff policy could cause some challenges for UK companies involved in sourcing from the continent (as production costs would go up) or selling to it (as companies would need to increase sales prices to cover the tariffs). Positively, Dun & Bradstreet’s baseline scenario still expects trade across the Channel to be carried out tariff free once Brexit is completed.

The true financial landscape will likely not become clear until 2019, once the UK has fully exited the European Union. Financial institutions will need to take stock and react accordingly to the swaying of the financial markets which will no doubt prove problematic to begin with. Over the short run, it seems likely that the government would try to counterbalance the negative economic impact of a hard Brexit by increased spending (in order to make its policy a success and maintain public support). Over the long run however, public services (including schooling and healthcare) might have to be scaled back even further in order to reduce the excessive government deficit to more sustainable levels.

Depending on what sort of deal is struck between London and EU, it is impossible to say when the country might return to ‘normality’ again. Businesses must, however, remain calm and not panic. After the implementation of Article 50, businesses must remain cautious until the pieces of the Brexit jigsaw are slowly put together again – a process that we expect to begin after the German elections in September 2017.

Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University:

Most economic forecasters are united in thinking that Brexit will make the UK worse off in the long run than it would have been staying in Europe. The reasoning tends to be that European competition has enabled the UK to specialise in what it’s good at – for example, financial services – boosting productivity, wage rates and national income. Also, the UK has benefited from foreign firms locating here as a gateway to European markets. Brexit is expected to unwind these benefits and, for now, there is huge uncertainty over what trading arrangements might replace our membership of the European club.

However, even if the nation as a whole is worse off, the impact on households is likely to be uneven. Trying to predict winners and losers is like looking into a muddy crystal ball, because it will be impossible to separate pure Brexit effects from policy responses. Crucial for households is what happens to inflation and interest rates.

Inflation is already on the rise due to a sharp fall in the pound (currently around 12% lower than its pre-Brexit-vote level ^[1]). This reflects reduced confidence in the UK’s economic future and pushes up the price of imported foodstuffs, oil, clothes and all the other foreign goods and services we love. Wages are failing to keep up, so household incomes are expected to be squeezed. If Brexit does reduce productivity, then depressed wages could persist for a long time.

Inflation is sometimes called a hidden tax because it erodes the value of fixed amounts of savings and debts, so tends to benefit borrowers but is bad for cash savers. The impact could be dampened if interest rates were to rise, but, so far, the Bank of England has suggested that it will not try to rein in inflation by raising interest rates because this could tend to depress economic activity and cause unemployment. However, loose monetary policy tends to push up asset prices, so households with property and equities may be winners.

Over time, the biggest Brexit effect may be shifts in employment with some households facing job loss, while at the same time new job opportunities open up. For example, the financial services sector may shrink and foreign car manufacturers may shift production elsewhere. Meanwhile, jobs with exporting firms could mushroom, since the lower pound makes the foreign price of exports more competitive. Households that are likely to benefit most are those who are willing to be flexible and go wherever the Brexit tide takes them.

[1] http://www.bankofengland.co.uk/boeapps/iadb/newintermed.asp

Howard Bentwood, Founder, Cedar:

As Brexit negotiations drag on despite the rapid approach of the ‘deadline’ to trigger Article 50, the financial world remains rife with uncertainty. Whilst news that the UK economy grew 0.7% in the fourth quarter of 2016 has been attributed by some to a ‘Brexit Bounce’, it is by no means the whole story. This better than expected economic growth has been associated with a rise in household consumption and manufacturing, with services and construction also ending the year well. However, it is worth noting that over the same period, investment was down 0.9% on the previous year and trade remained largely unchanged.

The next few months are sure to see further developments and unexpected economic revelations, as companies trade under changeable conditions. In the run up to the Brexit vote, Cedar saw many clients understandably adopting a more cautious position on hiring; many have taken an interim approach, by recruiting senior support staff on a flexible basis rather than committing to permanent headcount. Amid the turbulence of the current political and economic environment there is arguably an even greater need for top-tier expertise on the board to steer businesses through the uncertain waters. To this end, we have seen a rise in demand for interim Finance Directors, CFOs and CPOs in the last few months. Small and middle-sized companies in particular can benefit from an experienced interim practitioner who can bring their commercial acumen and insight to the table at a critical time.

In discussions with clients and staff, I often hear people wondering when things will ‘return to normal’; I believe that over time the world of finance will simply adapt to a ‘new normal’. Forward-thinking companies can be instrumental in shaping this future through the creation of their own ‘Department for Brexit’, tasked specifically with adjusting their strategy to match the new risks and opportunities faced by Britain as it exits the European Union.

Martin Campbell, Managing Director, Ormsby Street:

Trying to predict when things will be ‘normal’ again post-Brexit is nigh-on impossible. The business landscape will change forever and it is hard to see when things will go back to how they were. I suspect we will look back regretfully at our decision to leave the EU, especially given the Prime Minister now seems set on a hard Brexit. Leaving the EU will have many long-term repercussions, culturally, politically and of course economically. Europe is a key market for many UK businesses, with 96% of British SMEs who export, exporting into Europe. Being unable to trade so easily will inevitably have an impact that could last for years and years.

The uncertainty facing the business environment at the moment is very difficult and is certainly causing challenges in my business where we work with SMEs and large banks - both are playing a ‘wait and see’ game and avoiding long term commitments. But recent developments revealed in a series of interview with City of London business leaders has shown the real fear that the loss of banking jobs to EU countries could threaten financial stability across the continent. The immediate loss of a few thousand jobs is in itself not necessarily a disaster, but there could be a major knock-on effect in terms of financial stability if common regulation is not agreed with the remaining EU members.

The movement of labour across the EU has also been a real positive and there are many UK businesses who rely on the availability of a workforce with diverse skills from across the EU to grow their businesses successfully in the UK. Ormsby Street for example, now employs 12 people, three of whom are from other EU countries. Without this access to talent, future growth could come under threat and there are serious questions about how UK business can replace that talent in the long-term.

Shilen Patel, Co-Founder, Independents United:

As we head for Brexit the future of the country’s economy is naturally being called to question. But with uncertainty comes the opportunity for change and what better time for the UK to invest in its community of emerging entrepreneurial talent and product innovation?

Yes - the glamorous tech sector is in the middle of a funding frenzy, with over £6.7 billion invested into UK tech firms in 2016, but what about the country’s food and drinks sector that’s worth around a staggering £100 billion and represents manufacturing’s most profitable sector?

The fact is, as we head for Brexit, we’re going to need to stand on our own two feet and backing the full spectrum of our entrepreneurial talent will become a necessity. It will no longer be enough to invest in just the tech sector. We’re not Silicon Valley and we shouldn’t try to be. Britain’s heritage lies in product manufacturing – we’re really good at it. After all, the UK is the birthplace of the Industrial Revolution.

In the long-term, Britain’s food and beverage sector could be the lynchpin of a robust economy for a breakaway UK. Broadening our horizons to look at more than just tech start-ups will give our economy the chance to not only survive, but thrive. It's imperative if we want to boost our economy and stave off competition from abroad that we invest in our grassroots companies both inside and outside tech.

As we exit the bloc we need to give credence to our manufacturing sector. Last year alone, 16,000 new food and drinks products launched, which makes investing in FMCG something of a no-brainer. Our expertise as a country sits in the realm of making things. Food, drink, beauty, health, cosmetics and wellness – manufacturing is our heartland and where we face the least outside competition.

It’s not to say that we shouldn’t invest in tech, but rather that we shouldn’t put all our eggs in one basket if we want the post-Brexit economy to flourish over the next decade.

Mark Palethorpe, CFO, Cox Powertrain:

As a small innovative British engineering business, we’re watching the outcomes of Brexit closely. The EU’s Horizon 2020 programme currently provides £2.2bn of funding for universities, research groups and businesses taking on high-tech engineering challenges. That’s a large sum that the UK Government will need to find if the UK’s innovators are going to maintain their efforts. We are encouraged by the UK Government’s stated industrial strategy of getting funding to the small disruptive technology businesses that will be the future growth engine for the UK. We’re keen to see that materialise in terms of funding for SMEs not just for the big corporations with lobby power.

Cox Powertrain is working on a ground breaking new engine and relies on the highest quality talent. Like many British businesses, our team is international, driven by a need for the best quality people available. Post-Brexit, we hope any new visa processes remain straightforward, allowing us to continue to draw on the best possible talent.

On a positive note, the weakening pound will make our engine cheaper to purchase, once available, to overseas customers. Also, a move away from the EU could provide British businesses with a first mover advantage to do mutually beneficial deals with major economies like the US. If the UK Government is positive and proactive, trade deals will be possible and profitable.

Engineers at the forefront are used to change. We’re motivated by it. We hope that Brexit provides as many opportunities as challenges for our business.

Stephen Sumner, Managing Director, Explore Wealth Management:

Brexit is pretty much unchartered territory for everyone and I think it is difficult to predict what the long-term impacts on the UK might be. I think the one thing we can say for sure however, is the likely effect of the uncertainty that Brexit brings to both the markets and clients’ portfolios in the short term.

Each time news hits the markets of either side (i.e. the UK or the EU) making progress with how they stand post Brexit, the relative perception of this news being either positive or negative in nature will cause the markets to react either upward or downward, thus affecting clients’ portfolio values. This will continue to impact clients and their portfolios for as long as any doubt remains as to how the financial aspect of Brexit will affect UK based businesses and the UK and EU financial markets as a whole.

Ultimately though, post-Brexit, the fundamentals of advising clients are unlikely to have changed. As long as investors are suitably diversified in line with their views on risk and overall investment objectives, the effects of Brexit long term we foresee as being no more dramatic than other events in history which have caused short term issues, such as the recent banking crisis.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

With the impending prospect of Article 50, how should the savvy prepare? Here Finance Monthly benefits from an expert answer, authored by István Bodó, Amaury DeMoor and Karan Lal of REL, a division of The Hackett Group.

The British referendum vote makes a mark in the European Union’s history, as the United Kingdom has taken the decision to leave the EU and will become the first nation to ever leave the union.

Brexit’s impact on remaining EU countries

This slightly unexpected outcome of the vote prompted jubilant celebrations among Eurosceptics around the continent and sent shockwaves throughout the global economy causing a new “Black Friday” across the major European financial markets. Stock exchanges in Germany and France ended down 6.8% and 8% respectively. Since the British, Italian and Spanish stock markets also had losses above 12%, this was the worst drop in a day since the 2007-2008 global financial crisis.

Though financial markets soon recovered, uncertainty remains amongst both the European Union and United Kingdom, as a big question mark lies on the future of their relationship and the synergies that lie within.

From the perspective of the remaining EU countries, the United Kingdom has been a very strong and influential member. The UK is often considered to be the bridge between the EU and the rest of the world due to its historic Commonwealth and political strength around the world. With this relationship now at risk and major decisions in the hands of politicians, this is creating nervousness amongst organisations. Failure to sustain current relationships and trade deals could be damaging for both sides.

Many argue that the EU is a more important trading partner for the UK than the UK is for the EU. However, with the UK’s strong demand for imports from the EU, with special emphasis on the pharmaceutical and manufacturing industry, this is an important factor that needs to be taken into consideration.

In value terms the trade surpluses with the UK are concentrated in a small number of EU countries – Germany, in particular, as the UK is its third most important business partner with 120 billion euros in different goods and services being sold to the UK. Trading with the UK after a formal Brexit may become difficult and more expensive for German and other European companies as new customs and regulations may be implemented. This could have significant impact on the German automobile and engineering industry, considering that every fifth car sold abroad goes to the UK.

Whether the long-term impact of Brexit will cause a shift in European Union business to the rest of the world or will result in a genuine loss in business is unclear for the time being. It is therefore imperative for organisations to be strategically flexible and prepared for either outcome. By capitalising on opportunities to release working capital, organisations can weather economic downturns, as well as fund new opportunities that may be on the horizon.

Importance of working capital and cash

Working capital is the amount of cash that is tied up in a company’s day-to-day operations. It is important that all three components (accounts receivable, accounts payable and inventory) receive focus to realise maximum cash benefit opportunities and identify and tackle inefficiencies in processes and procedures (Fig. 1).

Organisations across Europe have significant opportunities, not just to strengthen their balance sheet but also to move towards world-class working capital performance – in fact, companies could release more than 229 million euros within their receivables, payables and inventories per 1 billion euros of sales.

By highlighting days inventory on-hand and days payables outstanding, median- performing companies have an above 50% improvement opportunity, which can yield and support substantial cost optimisation opportunities, whilst also releasing cash to help fund acquisitions, product development or other investments (Fig. 2).

Another important aspect of shifting from median performer to world class is the higher focus on continuous improvement and sustainable results that becomes part of the company culture, making the whole organisation more effective and efficient. Companies achieving world-class working capital performance are likely to be high performers in other operational areas as well. They are the businesses that not only respond and adapt to changes in competition and customer preferences, but they are also leading the change and capitalising on emerging growth opportunities.

Although the unknown potential impact of Brexit cannot be directly compared to the global financial crisis of 2007-2008, key lessons can be learnt from that period, as poor total working capital management was a key factor in several liquidations. In these situations, cash reserves were not sufficient enough to run operations and whilst at the same time banks were reluctant to increase credit.

How will Brexit shift business?

Britain leaving the union could lead to a shift or loss in business for EU companies. The pound falling to historic low levels against the euro has significantly dented the purchasing power of the United Kingdom. It is for this reason that many UK companies will look to source domestically, as well as outside Europe in an attempt to hedge against the fall in pound sterling.

Although Article 50 has not formally been put into motion and formal negotiations with the EU have not yet begun, the UK already is turning towards her Commonwealth, as Prime Minister Theresa May has already visited India in late 2016. The British prime minister was also the first to formally visit US President Donald Trump in January 2017, as part of the special and historical relationship both nations share with each other. Meanwhile, the EU has also turned its attention to the rest of the world by entering a free trade agreement with Canada in October 2016.

With such sudden political shifts, European-based companies are at potential risk to face a loss of business, as the majority of UK imports currently come from Europe, with Germany, Netherlands and France being the top three exporting countries to the United Kingdom (Fig. 3).

Whether Brexit translates to a shift or loss of business for European-based companies, in either scenario it is imperative for businesses to have a well-managed working capital programme and a well-embedded cash culture that enables smooth adaptation to the new economic environment Europe will face. Achieving a healthy level of total working capital proves to be the less risky option, especially in times of economic uncertainty, and provides companies the ability to stay flexible and resilient against sudden changes. Therefore, initiating total working capital improvement programmes covering accounts receivable, accounts payable and inventory are strongly recommended.

Bracing for industry impact

London is heavily backed to remain the top financial centre in Europe despite exiting the EU. This is largely due to the fact that other European cities such as Frankfurt, Paris and Dublin simply do not have the capacity, resources, culture and educational infrastructure to become a London-like city. With the United Kingdom’s strong political connections to the rest of the world, London also remains the stronger candidate for foreign capital investment.

It is for this reason that the shift in jobs and business is likely to remain minimal for the financial services industry but might be different for core European industries such as manufacturing and pharmaceuticals. With the United Kingdom largely importing from both the manufacturing and pharmaceutical sector (Fig. 4), these industries, in particular, are likely to face either a decrease or loss in business, assuming the risk that the United Kingdom will no longer be part of the single market and the continuous weakening of the pound.

Due to its capital intensive nature and sensibility to economic swings, the working capital requirements of the manufacturing and pharmaceutical industries are generally higher in comparison to industries such as consumer goods and services. This is largely driven by the complexity of the supply chain and the varying working capital performance across sub-sectors, such as plastics, metals, machinery, fabricated products, building products, etc. In addition, the high cost of goods sold directly affects payables and inventories, making working capital performance even more important. To withstand the potential impacts ahead, detailed analysis and assessments must be made in the receivables, payables and inventory areas in order to implement strategies to optimise working capital and use the extra cash to cushion volatility.

Low inflation within eurozone

On the path to recovery from the global financial crisis, interest rates in the eurozone have hit their lowest point in recent history. The decisions made by the European Central Bank (ECB) and backed by ECB president Mario Draghi are largely driven to encourage borrowing across the eurozone, in order to grow and stimulate the economy following the financial crisis. Though the eurozone has by a close margin recovered from the crisis, interest rates have remained low due to inflation targets of 2% not being met.

The currently low price of oil is a major contributing factor to low inflation, as oil is the eurozone’s biggest import; thus, a future increase in oil prices could put the eurozone back at higher inflation rates and increase the likelihood of higher interest rates.

With interest rates currently low and business loans looking attractive, many businesses take the easy route to borrowing money, instead of optimising their working capital. Though many organisations benefit from such a low interest climate in the short run, working capital optimisation proves to be a more sustainable path for the long term, as it shows managerial efficiency, attracts investors and, most importantly, frees up cash. Having the ability to free up cash by improving internal processes always adds value, as it allows organisations to eliminate inefficiencies and remain flexible and dynamic in facing economic uncertainties such as Brexit.

Summary

The unknown impact that Brexit will have on the European Union and the United Kingdom further adds to the uncertainty and nervousness of businesses affected by the move and may lead to delays in investment decisions. Though the UK will hope to retain access to the European Common Market, major European companies will be watching closely as this could have significant impacts on the products they export to the United Kingdom.

Authored by Grant Thomas, Head of Practices at BJSS, the below provides Finance Monthly with particular insight into the top trends and movements UK financial services organizations will encounter in 2017, and increasingly in the future.

Financial services have always been at the forefront of technology. The industry was amongst the first to invest in mainframe computing, while it pioneered complex integration points to global payment switches, and in 1967 Barclays introduced the concept of self-service with the world's first ATM.

Fintech takes this innovative spirit a step further, and in spite of operational challenges, is driving the development of pioneering ideas to improve customer experience, efficiency and security in the Financial Service sector.

1. Brexit has injured Fintech. But not fatally.

One of the biggest questions to be answered this year is the extent to which Brexit will stifle Fintech innovation and if there will be an exodus towards competing financial centres such as Paris and Berlin.

At face value, things look challenging. Proposed restrictions to the free movement of talent may make it more complex and expensive to hire experienced staff. The process of securing VC funding is likely to become more rigorous as financiers look towards investing in less politically risky climates, but many opportunities still exist.

The key opportunities are that the lower value of the pound has made UK providers more commercially attractive, allowing local firms to compete against their offshore rivals. Added to this, changes to the regulatory environment, and continued R&D in complementary technologies will mean that London will continue to play a leading role in Fintech.

2. Product roadmaps will adapt to support the Bank of England’s new regulatory environment.

The UK will be keen to remain an attractive financial destination, so the Bank of England will take a critical look at its regulatory environment, deciding on which financial regulations require tweaking, diluting or eradicating. The regulator will also look at introducing new financial products, as demonstrated by a recent announcement of its ambitions to launch a Bitcoin-rival cryptocurrency. As a result, Blockchain, which automates and adds transaction security, will continue to attract investment.

Also, evolving regulatory directives such as Open Banking and PSD2, will create an even more difficult operating environment for established players – there will be great demand for Fintech providers to help plug this gap.

3. Mobile devices will become Fintech’s primary channel.

According to Ofcom’s 2016 Communications Market Report, Smartphones are now our preferred channel for accessing online content. Now they are set to become the main way of managing personal finances. Already three out of every ten mobile internet users use their devices to access their bank accounts, while two out of every ten use their devices to complete electronic payment or transfer transactions.

While most consumers are already familiar with services such as Apple Pay, Android Pay and Samsung Pay, Fintech providers will exploit online as well as built-in NFR and biometric technologies to introduce peer-to-peer payments, digital-only banking, forex, and mobile wallet products.

But mobile is just one part of the future of Fintech, and the ability to crunch diverse and deep datasets will drive greater innovation.

4. Customer take-up will be driven by Big Data, Data Science and Analytics.

Fintech providers will look at exploiting tools such as Hadoop, Python, NoSQL and Spark onto Private and Public Cloud services in order rapidly to deliver outcomes and to identify and understand customer behaviour and target markets.

Big Data will be combined with sophisticated machine-learning algorithms to upsell products and services based on key life milestones. This use of data science will proactively push financial products based on customer behaviours, instead of simply waiting for clients to submit product applications. Modern computing and advanced mathematical techniques enable personalisation, at any scale, and without human intervention.

5. Artificial Intelligence and machine learning will use this data to put a human face in computing decisions.

AI technology presents a huge opportunity for Fintech providers because it combines the rules-based reality of computing, with a human interface. It enables providers to take quick, business-safe decisions while reducing the processing time of routine customer enquiries. The model can be adjusted to accommodate customer preferences, their demographics, and interests. Thanks to language interpretation, a customer will be able to ask a question, which will be processed and answered by a Bot either by through text to speech or instant messaging services.

AI has development commitment from the big players. Apple, Amazon, Google, Facebook, IBM, and Microsoft have partnered on a non-profit joint venture which aims to “conduct research, recommend best practices, and publish research under an open license". AI is becoming mainstream.

By adding machine learning to the mix, the accuracy of chatbot responses is improved. When combined with AI and superior user-driven service design, Fintech providers are able to provide compelling and personalised customer interaction products to improve reliability and customer satisfaction. Those Fintech providers who focus on using AI and machine learning will pioneer a customer experience revolution: CX2.0.

This will lead to the death of ‘off the shelf’ and proprietary one size fits all.

Wide-ranging standards such as Blockchain, mobile, Big Data, AI and machine learning preclude a single one size fits all “off the shelf” solution. Fintech providers with ambitious roadmaps will embrace low-latency products based on enterprise-grade Open Source which are proven and secure.

Also, given the speed at which this new technology is evolving, Fintech providers will adopt an Agile approach to building their products. The benefit of Agile is simple. It accelerates delivery processes, and through on-going planning and feedback, ensures that value is maximised. Crucially, Agile also supports continuous delivery, ensuring that quality is maintained and that any risk of failure is reduced. With Agile and continuous delivery, Fintech providers will be able to rapidly develop and refine their products to support an ambitious roadmap. They enable Fintech providers to ensure that the engineering of their products, integration, functional and non-functional tests, deployments and provisioning are catered for throughout.

Britain’s role in the Fintech space is secure and, thanks to a range of next generation technologies, coupled with an improving operating environment and Agile development processes, will provide compelling products and innovation that will boost service provision and reduce costs.

2016 was an unprecedented year, with massive global political upheaval, the rise of Artificial Intelligence (AI), and centre stage being taken by issues such as ‘post-truth’, resurgent nationalism, and technological unemployment. These social, technological and political shifts have significant potential ramifications for all aspects of global finance, commerce and markets. Hence, with the world now more accustomed to such seismic agenda changing developments, the Fast Future Publishing team have turned our thoughts to the future and dipped into our recent book The Future of Business and our upcoming release The Future of AI in Business to suggest what might happen in the year ahead. Below we provide our 2017 year-end report, outlining 20 critical trends and scenarios we could see emerging, and highlight their potential impact on economic and financial markets.
Politics, Government and Regulation

1. The Presidency as a Business Model – Following his inauguration in January 2017, President Donald Trump rides roughshod over accepted norms of presidential behaviour. After his first year in office, analysts suggest that he could easily exceed President Putin’s estimated net worth of US$200Bn by the end of his first term, and could ultimately become the world’s first trillionaire. In this rapidly changing reality, businesses must become very aware of the new commercial opportunities that are opening up as a result of the president’s strategy. Equally vital will be to see where opportunities may disappear – a key example being the US car industry which is being strongly discouraged from investing overseas.
2. Who Needs a Constitution? – While opponents desperately seek a mandate for his impeachment, Trump’s team, his supporters and the major beneficiaries of his reign seek to extend the powers of the President. They also pursue the removal of limits on the duration of the US presidency and the number of times an individual can hold the office. This endemic uncertainty around the presidency could inspire volatility in financial and currency markets.
3. Brexit Brouhaha - Despite invoking Article 50 in the spring, the UK government is blocked at every turn by a string of legal challenges that hamper progress. The 'UK question' hyperbole was increasingly used by both sides in several national debates – from garnering support by claiming to represent the political will of the UK electorate on the one side to scaremongering on the risk to the UK economy and the European project on the other. This could lead to a number of companies wanting to exit the UK. However some of the incentives created around the future of Britain could encourage investment in the country – particularly the tax haven strategy.
4. May Day - Exasperated by the Brexit roadblocks and under pressure from many in her own party, Prime Minister Theresa May announces a general election for October 2017 to let the public decide if they want her Brexit plan. The result is a hung parliament, with UKIP the biggest single party and Nigel Farage leading the next coalition government. This dramatic political over-haul could lead to chaos in financial markets, initiate an exodus of foreign firms and talent, drive a reduction in corporate investment, and induce huge hesitancy in individual spending behaviour.
5. Wildcard Wagers - The tumultuous events of 2016 sparked a rise in public event betting markets, with 2017 becoming the year of the wildcard wager. Betting shops saw an incredible rise in bets being placed on all manner of events from animals escaping zoos to the sudden collapse of buildings. A new breed of AI-based betting companies emerged which even allowed us to bet on the life expectancy of an individual. These companies draw on social media and ‘permissioned access’ to personal data to determine your life expectancy. Those that give permission for personal their data to be accessed by the betting companies can then share in the proceeds of the bets on their life. While the market might be created by relatively new players, existing betting companies might also see it as a lucrative new opportunity.
6. Will They or Won't They - While regulators were called upon to question the ethics of betting on life or death scenarios, advocates saw the potential for public engagement through such betting, and single interest political groups arose around the potential outcomes of specific events. Online political networks surrounding betting events were created by disparate groups; with individuals identifying as will-happen or won't-happen. This saw sudden huge surges of political activity and engagement, which dropped off drastically after each such event. These new revenue generation opportunities might well be short lived if governments seek to control them. But there is an interesting new technological application; we might see AI being used here to dynamically create, operate and close these markets based around short term events.

Technology and Privacy

7. Artificial Intelligence – Following the hype phase of 2016, real applications started to emerge in 2017 – such as intelligent assistants on our smart phones and medical decision support tools. Cash-strapped governments turned to AI for the automation of a range of functions from processing student loan applications to handling divorce adjudications. The impact of AI could see businesses deliver a dramatic reduction in operating costs and exponential revenue growth.
8. Driving Ambition – In a bid to become a key centre of innovation and sector development in driverless vehicles, China and the UK led the way in allowing on road trials of driverless vehicles. Both governments accelerated the process of regulatory change to allow fully or semi-autonomous cars, trucks and buses onto roads across their nations in 2018. One of the most interesting early market impacts of this development could be the early arrival of very low cost upgrade kits that let us add autonomous features to our vehicles
9. Self-Powering Nations – Faced with continued uncertainty over the price, availability and environmental impact of fossil fuels, 2017 saw a record number of nations powering themselves with renewable energy for at least part of the year. We could see a significant reduction in overall energy production and distribution costs. This could bring a benefit to the consumer whilst also reducing long term environmental impacts and clean-up costs.
10. Leave me Alone – 2017 saw a dramatic increase in the availability and adoption of Blockchain technology-based personal privacy management applications. By year-end these are increasingly used by individuals to secure their own communications and information storage to avoid sharing data with massive corporations such as Facebook and Google. Brand new business opportunities could emerge for providers that can offer these cutting edge privacy protection services.

The Economy and Business

11. Corporate Flight – Uncertainty over Brexit leads several major companies to announce that they are moving their headquarters, R&D functions and core operations to Dublin, Amsterdam, and Frankfurt. The exodus is well underway by year end. If large high earning corporations leave en masse, there will be a dramatic impact on projections for long term GDP growth and potentially violent fluctuations in share prices.
12. Wealth Haven Britain - Taxes are so 1990’s – to help cushion the expected economic impact of Brexit, the UK government tries to retain and attract foreign investment and wealth. The key pillars of the strategy are the introduction of the lowest corporation taxes in the G20, with massive increases in tax allowances for both R&D and establishment of local production facilities. In parallel, a range of personal taxation measures are introduced that make Britain look highly attractive when compared to the best of the offshore tax havens. Britain will face huge opposition from other countries if it chooses to undercut them with its tax regime. However, this could also see rapid acceleration of foreign investment and the arrival of private foreign wealth.
13. Masters of the Universe - The major technology players such as Google, Baidu, IBM and Amazon continued to pull away from the pack with ever-more sophisticated technology applications. These range from super intelligent ‘brain in the cloud’ solutions to extract insight from the wealth of data being created by the Internet of Things, to smart assistants managing our daily lives and instantaneous translators covering over 50 languages. These new hyper-personalised services could accelerate revenue growth and boost share prices.14. Digital Dementia – In 2017, the corporate sector and many governments continued to adopt a somewhat cautious approach to the use of disruptive technologies such as blockchain and AI. Those who are pursuing expensive digital transformation projects began to see that their initiatives are eliminating the distinguishing human element and effectively commodifying everything they do - as digital differentiation is impossible to maintain. Stock markets began to write down the value of firms that appear to have got lost in this digital maze – whilst advocating those that appear to be using the technology to support talent rather than replace it.

15. Parallel Worlds – A parallel universe of new economy businesses emerges here on Earth. Digital era mindset firms proliferate – trading with each other using Blockchain contract systems, transacting in digital currencies, deploying AI for core activities, and – in some cases – creating entirely digital Decentralised Autonomous Organisations with no physical employees. In the face of broader uncertainty over the future of mainstream businesses, we could see a significant amount of corporate investment and venture capital money flowing to such businesses.

16. The New Professionals - A raft of AI client advisor applications are launched by the major legal, accounting and consulting firms – automating tasks previously performed by professionals and driving a reduction in headcount. This may induce a reduction in the pricing of services from these firms – but could simultaneously drive significant growth in revenue as they can offer these services to more clients in parallel without having to increase headcount.

Social and Leisure

17. Technological Unemployment – The use of new smart technologies, coupled with increasing automation and the termination of ‘non-viable’ activities by large businesses, sees unemployment rising across a range of sectors in countries around the world. This could have a dual impact – both on the level of debt in society and average incomes.
18. The Crumbling Middle – Stalling growth, technological unemployment, The Trump effect, Brexit uncertainty, and general cost cutting bites hardest in the educated middle classes in professional and managerial roles across the developed world. The impact is felt in areas as diverse as theatre attendance and private school enrolments through to the purchase of new cars and holidays.
19. Virtual Immortality - Holographic versions of David Bowie and Prince go on tour. A student team were able to generate new stage performances for these and other artists using previously unreleased tracks and composite digital imagery. A crowdfunded campaign raised enough money from fans to finance a global tour for Bowie and Prince. Holograms of the stars toured the planet, occasionally doing duet gigs together. The use of Virtual Reality and Augmented Reality allows for viewers to purchase VIP and Platinum VIP passes that put them in the front row on even on stage for the performances. These brand new markets will create new pricing opportunities – could these holographic experienced be priced similar to an original stadium concert, or would they be more aligned with the cost of attending the cinema.
20. Robo-Retail -The traditional shopping model was subverted as the Amazon Go concept store was rolled out across the US. Using smart phone technology, item tracking and mobile payment methods, shoppers simply pick up their desired items and leave - the purchases being automatically logged and their accounts debited. The stores saw roaring trade, with customers spending much higher amounts than they normally would, with Amazon’s more traditional competitors forced into a near permanent ‘black Friday’ mentality of continuous discounting. This could drive significant growth for the early adopters – but may see a significant decline in revenue for the slower moving competitors.

About Fast Future Publishing

At Fast Future Publishing we develop our books using an exponential publishing model, and we have completed the successful launch of our first two books – The Future of Business (top five per cent of all business books in its first year), and Technology vs. Humanity (Amazon bestseller within one week of launch).

We are a new breed of publisher founded by three futurists – Rohit Talwar, Steve Wells, and April Koury. Our goal is to profile the latest thinking of established and emerging futurists, foresight researchers, and future thinkers from around the world, and to make those ideas accessible to the widest possible audience in the shortest possible time. Our FutureScapes book series is designed to address a range of critical agenda setting futures topics that we believe are relevant to individuals, governments, businesses, and civil society

Rohit Talwar, Founder and CEO

Rohit Talwar is a global futurist, founder of Fast Future and an award-winning speaker noted for his provocative content. He advises global firms, industries and governments on how to survive, thrive, spot and manage emerging risks and develop innovative growth strategies in the decade ahead. His interests include the evolving role of technology in business and society, emerging markets, the future of education, sustainability, and embedding foresight in organisations.

Katharine Barnett, Concept Editor

Katharine works on creating, developing and editing a variety of content for Fast Future Publishing. She has a broad range of futurist interests including societal and behavioural norms, digital and information ethics, biomedical ethics, genomics and pharmacology, and the future economies of the developing world.

 Tony Butterworth is a Senior UK Immigration Consultant with 23 years’ experience in UK immigration, seven of which were spent in the Home Office as Executive Officer. He works with large multinational companies and individuals of all nationalities, such as skilled migrants, investors and high net worth individuals who are seeking work authorisation for economic based activities. Here he offers his insights into the Brexit implications on immigration in the UK, recent regulatory developments in the sector and what it means to be an immigration practitioner.

As a thought leader in the segment, what would Brexit mean for immigration in the UK? Do you believe that leaving the EU will actually reduce immigration in the country?

Whilst the true impact of Brexit on UK immigration remains to be seen, it will inevitably lead to changes to the current EEA policy. Following the Prime Minister’s speech earlier this month, we know now that the United Kingdom intend to impose restrictions on nationals of EU states wishing to enter the United Kingdom. The question remains as to when and how this will take form.

Currently, there is no legal requirement for EEA nationals or even their family members to register their residence with the Home Office. There could be significant numbers of these migrants living in the United Kingdom with no Home Office record. This issue has been addressed in the recent introduction of The Immigration (European Economic Area) Regulations 2016. What is evident is that the introduction of stricter registration requirements on EEA nationals and their family members is almost a certainty.  Another point to bear in mind is that removing free movement of EEA nationals into the United Kingdom does not necessarily mean a reduction of workers entering the United Kingdom. Employers will still be selective as skills and experience are required to fill posts. If these cannot be met by UK workers, they will be forced to continue to look for talent further afield. It is likely that any changes to immigration requirements, as a result of Brexit, will not deter employers from recruiting the best and most skilled workers.

What would you say was the biggest regulatory development to affect the UK Immigration sector over the last 12 months?

The UK Immigration Act 2016, came into force in May 2016. This Act is significant because not only did it introduce changes to Immigration law and policy, but it also covers housing, social welfare and employment. Significant changes include the right to freeze bank accounts and seize driving licences of migrants who are here unlawfully, imposing criminal sanctions on employers found to be recruiting illegal workers, and the right to remove all migrants from the United Kingdom pending their appeal against the decision to remove.

What do you anticipate for the sector in 2017? Are there any legislative changes on the horizon?

Following changes to the Tier 2 category which were implemented in November 2016, further changes are due to be applied in April 2017. This includes the introduction of the ‘Immigration Skills Charge’ under which employers will be required to pay a fee of £1,000 per year for each sponsored migrant, requiring Tier 2 (ICT) Migrants to pay the Immigration Health Surcharge (IHS), increasing the Tier 2 (General) salary threshold to £30,000, and abolishing the Tier 2 (ICT) Short Term category. The Immigration (European Economic Area) Regulations 2016 will also come into effect on 1^st February 2017. The main changes in the regulations are the introduction of a ‘genuineness test’ for Surinder Singh cases, the requirement for EEA applications to be completed on prescribed forms, and abolishing the right of appeal for extended family members.

What challenges does your work throw up regularly and how do you structure your approach in order to overcome them?

Immigration practitioners face challenges in keeping abreast of the ever changing and sometimes complex immigration rules and policies; monitoring regulatory developments, analysing their impact on both individuals and businesses, and implementing the necessary changes in the interests of our clients. It is important to actively engage in dialogue with regulators and participate in consultations, where possible. Our aim is to keep our clients informed of changes as soon as these are anticipated and to provide advice on overcoming any obstacles such changes will pose.

What are Ferguson, Snell & Associates’ major achievements?

Apart from ensuring our clients continue to receive the high level of service we have become known for, evidenced by the number of long standing client still with us, Ferguson, Snell & Associates continues our journey with a strong global team. By responding to our clients need for immigration and coordination services into the US, EMEA and emerging markets, we are growing from strength to strength. Our global team brings a new dimension to our business and sets us apart from our close competitors. Coming up with an efficient and strategic global immigration plan is a challenge when immigration is not included in the corporate agenda. But our skills in providing efficient and creative solutions is where we prove ourselves to our clients.

Client referrals and a professional, experienced and talented team is testament to our progress and reputation.

With an in-depth analysis into the overall effect of the pound’s fluctuation on small businesses, here Saskia Johnston, Foreign Exchange Expert at Sable International provides exclusive insight for Finance Monthly’s economy savvy on several ways SMEs can protect themselves for the coming years.

As we wait to see what kind of effect the UK’s looming exit from the European Union will have on the national economy, there is very little in the way of absolute certainties. The weakening pound is one of the only tangible consequences of the vote so far (political unrest notwithstanding), to the point that HSBC’s chief currencies analyst described it as the ‘official Opposition’ to the Brexit-enabling UK government.

But beyond the politics and macroeconomics of it, a weak pound has an immediate effect on the bottom line of many UK-based SMEs. Any company importing products from Europe has seen costs rise by at least 22% - enough to deliver a serious blow to margins, and for businesses with sensitive enough cashflows, enough to be outright lethal.

If you’re running one of these SMEs, it’s vital to protect your organisation against exposure to the weakening pound. Here’s how.

Forward contracts

As the UK and the EU continue to circle around each other, each peering suspiciously at the other, currency markets will continue to be volatile. Uncertainty is the new norm, so make use of whatever certainty is available.

Forward contracts represent a kind of security, if not certainty, for any company with a foreign currency amount due at an agreed date. They involve you agreeing a fixed exchange rate at a certain point in the future, and can cover an individual payment or multiple payments across different periods of time.

By setting these dates in advance, you effectively agree to buy or sell the pound at the predetermined price point for up to a year in advance of the sale or purchase. This removes currency risk for you and your supplier or customer – after all, for all that the pound has weakened in recent months, it also tends to shoot back up at times that might be inconvenient for the other party. It may limit your upside gain, but it takes the element of chance and the risk inherent in a changing political context out of the equation – allowing you to lock in your profit and continue working on your projects without losing money.

Limit orders and stop-loss orders.

If your currency exposure is shorter, it may be worth setting up limit orders on certain transactions.  This has one chief benefit: it allows you to set a price target above where the market is currently trading, ensuring that your orders are automatically filled when this price is hit. This offers a clear upside and allows you to cover your bases in the event that the pound outperforms expectations.

Stop-loss orders offer the opposite, doing exactly what the name implies: preventing unnecessary loss. They insure you against the possibility of currency underperformance, allowing you to set a “worst case” price against the current market level.

Your order will be filled if the market drops to (or past) your protective price.

One Cancels the Other (OCO)

Of course, limit and stop orders are naturally complementary, and it’s possible to use both as part of a combined One Cancels the Other (OCO). This kind of arrangement allows you to run a limit and stop-loss order together, ensuring that the second your upper or lower price limits are hit, your orders will be filled – with the unfulfilled price target being immediately cancelled. You can also split your gross amount up into a number of smaller transfers if your currency need isn’t especially pressing.

This goes some way towards mitigating your risk and improving your trading position. When you know what your upper and lower rate limits are, much of the uncertainty of currency fluctuation is entirely removed – allowing you to ring-fence your revenues and focus on the things that matter most to your company, rather than the economic and political factors you can’t directly affect.

Of course, every business has different requirements, and the solution that’s most appropriate for yours won’t always be immediately clear. To truly hedge against the uncertain, it’s important to seek the right foreign exchange advice. Currencies may be unpredictable, but you can set your business up to make the most of them.

Melaine Campbell, Managing Director at Dun & Bradstreet, discusses her compliance predictions for the year ahead.

It is hard to ignore the impact that the one of the most turbulent political years in recent memory might have, not least on world of compliance. The overarching theme from the second half of 2016 seems to be countries making moves to do what’s best for themselves in regulation, rather than what works for the majority. From Trump to Brexit and all the regulations in between, 2017 will certainly bring uncertainty to the regulatory landscape…

In the US, Donald Trump has given some indication on his perspective on regulatory compliance: to eliminate regulations which are not in the public interest. In his economic policy platform he called for “a new modern regulatory framework” and outlined his vision on regulations proposing to “reform the entire regulatory code to ensure that we keep jobs and wealth in America” as well as “issue a temporary moratorium on new agency regulations that are not compelled by Congress or public safety.”

Since becoming President-elect, Donald Trump’s stance on Dodd-Frank has been scaled back, although it is apparent he still intends to dismantle the federal law passed in 2010. This deregulation would mean fewer stringent compliance checks and a rethinking of how to ‘red tape’ banks.

Furthermore, while Trump is concerned about burdensome regulations, he also is concerned about fighting terrorism and other crimes such as drug trafficking. His objective, as is the case with any administration, is to disrupt the financial flow to terrorism groups and other criminals.

Closer to home, it is also hard to say how Brexit will impact international regulation immediately, but it is clear from Theresa May’s speech on 17th January that the UK will leave the single market, revoke EU laws and set its own regulations in due course. As a result, there will be an even greater demand in the short and medium term for the compliance functions for businesses due to the increasingly likely outlook of complex regulatory negotiations.

In the midst of significant potential change in 2017, it will be vital for companies to make use of the latest data and insights to ensure that they are up to date with international requirements. Know Your Customer (KYC) will be vital, both from a compliance and business perspective; the compliance team can share insights with the rest of the organisation about potentially risky partners and prospects. Data must be current, accurate and be drawn from more than one source – such as using online news sources to support public records. Companies will also need to take care over how they use data, and be aware of possible changes to privacy laws in different territories. Working with a well-informed and compliant data provider will help to address this.

There is a view that even if regulation is scaled back, companies’ own compliance efforts will remain strong. There is growing acknowledgement in the business community of the importance of remaining compliant to demonstrate corporate social responsibility, and attract both customers and the best new talent. Through their compliance efforts, businesses can play a role in disrupting terrorist and corrupt organisations. By pursuing ethical and compliant growth, businesses can not only benefit themselves, but make a positive difference to the world.

(Source: Dun & Bradstreet)

Though the US’ 45^th President, Donald J. Trump stole the headlines last week, Alpine resort Davos saw a sweep of discussions, announcements and interesting statements come from this year’s 47^th World Economic Forum.

Here below we have picked out some of the top highlights from the four-day annual forum.

US-China Trade War

Keynote speaker Chinese President Xi Jinping opened the forum stating that “Protectionism is like locking yourself in a dark room, which would seem to escape wind and rain, but also block out the sunshine…No one is a winner in a trade war.”

Jinping and other Chinese spokespersons, throughout the forum, set out a strong position, a warning even, against Trump's intimidations to start an American trade war against China.

Chairman of Ali Baba stated at the forum that a trade war between the US and China would be disastrous, and that he would do all he could to prevent it. "I think that China and the US should never have a trade war, will never have a trade war, and I think we should give President-elect Donald Trump some time - he’s open-minded, he’s listening," Ali Baba’s Chairman said in a speech.

AIi Baba executives also announced the signing of an Olympic sponsorship deal and provoked the US on its concerns towards its military rather than prioritizing infrastructure.

Europe & Brexit

On topics of European politics, and their effect on global economic matters, delegates met to discuss, and thereafter agree or disagree, on how political shifts, due to ground-gaining anti-establishment political parties, can be addressed by institutions.

Brexit was of course a big talk at the forum; in the UK Prime Minister's attempt to woo London’s banks, describing the institutions as a “huge value” to the economy despite their announcements of accelerated action in transferring executives to the EU, May shifted her Brexit priorities towards financial services in the UK capital. She said: “I value financial services in the City of London, and I want to ensure that we can keep financial services in the City of London… I believe that we will do just that.”

Additionally, the UK PM was confident in portraying post-Brexit Britain as a champion in free trade, claiming that “The UK will step up to a new leadership role as the strongest and most forceful advocate for business, free markets and free trade anywhere in the world.”

An interesting comment came from Sergio Ermotti, CEO of the UBS Group AG: “2017 will be a very challenging year for Europe…You see what's going on with Theresa May (and Brexit) but also, we have elections coming in Holland, most likely it's going to come out that the Populist party will have a relative majority. You will see France elections, you will see German elections, Italian elections and they are all pointing out to a lot of divide within the EU on how to tackle these issues."

Trump’s Presidency

On the other hand, much discussion also surrounded the inauguration of Trump, populist politics and business confidence on the back of his intentions… and tweets.

“I think that these very rational people will be very thoughtful when they go about the actual policy,” said Jamie Dimon, CEO of JPMorgan Chase & Co., discussing the need to focus on Trump’s cabinet nominees, rather than worrying about his one-line tweets.

Dimon told reporters he was not concerned about the US’ future and its effect on the world’s economy, given that the real estate magnate and TV star has enlisted “very serious people” for the new US administration.

Though financially, many were on the fence in discussions surrounding Trump’s intentions in relation to finance, Wall Street’s high flyers spoke about being confident that the incoming administration will relax regulatory limits on financiers, though they are not counting on the new President to overturn Obama’s Dodd-Frank Act (2010).

On the last day, a discussion took place as to whether populist politics can be positive for the global economy, markets and moving onward. Both the election of Trump and Brexit were prime examples used to define whether populism is a detriment to economic affairs or not, and one of the overall conclusions that can be taken from the discussion was that Trump and similar scenarios “will be disruptive and bring the economy forward,” (Indian billionaire Anil Agarwal).

This however, was not a majority opinion shared by all, and has been an ongoing debate through various speeches at the forum. Philip Jennings, General Secretary of the UNI Global Union said: “I think Donald Trump is going to turn out to be the betrayer in-chief. If you look at the people that he’s surrounded with, there’s not one of them that’s got the working man’s interest at heart.”

But again: “In Davos, I’ve got the impression that the Trump election is being interpreted as thoroughly positive in economic terms,” stated Swiss Finance Minister Ueli Maurer to reporters on the final day.

Technology, Motoring, Climate Change and R&D

But of course, politics did not dominate the forum necessarily, leaving ample space for tech and manufacturing companies to make announcements and analyses.

Toyota Motor Corp. Chairman Takeshi Uchiyamada, says that due to the need for further infrastructure, fuel-cell automobiles will eventually become popular, but it will take much longer than it took gasoline-electric cars to gain status.

“The hybrid sold much faster than we had anticipated…as for the FCV cars, we assume it won’t be as fast as hybrid as the infrastructure needs to be prepared before it becomes major in the market,” he told Bloomberg.

Co-founder of Alphabet Inc., Sergey Brin said in a speech that the company was one of the biggest spenders on AI in the world as of late, stating that the boom in uses of AI technology “has been very profound, and definitely surprised me even though I was right in there and could throw paper clips at them."

Much of his speech revolved around advances in AI technology, their application to a variety of segments from law to manufacturing, the threat of job eliminating and further shifts in society. He says it is a priority now to focus on the “inherently chaotic” tech steps and how the world must adapt appropriately.

Another hot topic during the week was climate change. Campaigners are worried the US’ new administration will be the demise of fresh policies, action and protection. Norwegian Prime Minister Erna Solberg spoke on behalf of the many in stating that Trump may very well not implement the Paris agreement, which aims for nations to keep global warming levels “well below” 2C. Many activists said their prime focus now is on Trump’s moves and how they might affect global climate concerns.

On top of these developments, the Gates Foundation also announced the joining of a global coalition for vaccines, against infectious diseases worldwide, the Coalition for Epidemic Preparedness Innovations. Starting off with a funding of $460 million from the Wellcome Trust, Germany, Japan, Norway, and now the Gates foundation, the coalition aims to develop and deploy vaccines in record times to curb the spread of global diseases.

And finally, the entire forum itself went to prove to the world the gigantic advent of drone technology, in the form of security. Across the Davos resort, security staff were armed not only with counter-human measures, but also with anti-drone technology. Dedrone, a leader in said technology, provided the personal with a drone defence system. Police in the Canton of Graubünden then used the system to monitor critical airspace above the resort area in real time.

This afternoon reports indicate Theresa May, in her speech regarding Brexit negotiations, says the UK “cannot possibly” remain part of the European single market. In addition, the PM has stated that parliament will also get to vote on the final agreement with the EU.

Following the speech, Finance Monthly has heard commentary from the below sources, who have provided their insight into the developments.

Jake Trask, currency analyst, UKForex:

Sterling rose today as the markets welcomed the content of Theresa May’s speech outlining the framework of how the UK will approach its negotiations to exit the EU. The markets appear to have taken heart from the prime minister’s reassuring words, signalling that the UK government will do all it can to avoid a cliff edge scenario, where at the end of the two year process we default to WTO tariffs.

The PM said her preferred approach would be to implement the changes in a staggered manner. This controlled method of exit appears to have calmed market fears, with the proxy for Brexit sentiment, the pound, rising two cents against the dollar throughout the day.

Bruce Johnston, Head of International Finance, Morgan Lewis:

There are no plans for an overall transitional deal, but there may be interim arrangements to minimise disruption for certain sectors of the economy.

Free trade agreements with the EU and the USA will take many years to negotiate (long after the UK leaves the EU).  Serious negotiation of free trade agreements cannot start until the exit agreement with the EU is signed (and ratified by the 27 EU countries).

We await the court case in Dublin which (amongst other things) may determine if the UK remains in EFTA after it leaves the EU. It appears that the UK government does not think so, by May’s statements on the single market and the customs union.

Mark Boleat, Policy Chairman, City of London Corporation:

The Prime Minister’s speech today added a degree of clarity for the Government’s Brexit strategy.

We welcome the Prime Minister’s ambition to retain the greatest possible access to the single market, which is important to the UK’s financial and professional services industries.

Passporting rights and access to leading talent – facilitated by the single market – has, in part, helped make Britain the world’s leading financial centre, but the Government fully recognises that protecting these vital industries is a priority.

Trade between the UK and the European Union has helped make our country prosperous. We welcome that Government recognises the value and importance of EU companies seeking access to the services of the City of London.

We also welcome the decision to trade more with existing and new international partners – this has the potential to be the prized trophy of the UK’s decision to leave the EU.

The City has been vocal on the need for a transitional arrangement from the time Britain formally leaves the EU and when the new arrangements come into effect. Following today’s announcement, this becomes an even greater necessity. We would like to see a transitional agreement announced as soon as possible.

Government’s phased implementation plan must avoid a cliff-edge and will be beneficial for firms across all sectors, especially financial and professional services firms. The Government must stick to this commitment.

Britain has long been a magnet for global talent. To continue the sector’s success, with 12% of City workers made up of European staff, it is important the flow of leading talent to the UK continues. We support the wish to maintain the rights of EU citizens currently working in the UK.

Charles Brasted, Partner, Hogan Lovells:

For those who have been listening carefully to Theresa May and the Government in recent months, today was the day when the PM had to face up to the implications of what has already been said.  What the PM has done is to reaffirm the primacy of key commitments to taking back control of laws, courts and borders — and to admit  that that necessarily rules out membership of the EU's clubs.

Mrs May's aspiration is a bespoke deal that emphasises access, not membership, that seeks to be part of a customs union – but not on the terms of the existing customs union, which preclude the UK striking its own trade deals — and that is based on on-going regulatory consistency and reciprocity. The impression from the EU is likely to be that this is precisely the cherry picking that they have warned against. However, the EU has shown itself able to agree sector-specific arrangements based on these principles and the UK's answer must be to show that it is seeking an agreement that preserves the best of the relationship for the benefit of both sides.

Mrs May has also been keen to reassure businesses and others by highlighting the intention for continuity of laws and rules immediately post-Brexit and for an "implementation phase" that would deliver the full future relationship over time through a smooth and ordered process of realignment.

Every one of the aspirations expressed by the UK Government today will demand exceptional political skill to negotiate and will be complex to implement legally and commercially. The objectives are now clear – the path towards them is uncharted.

Set to present the UK’s plans for the EU exit today, British Prime Minister Theresa May has ruled out any “half-in, half-out” situation, stating that the UK’s 12 point plan aims to not leave the nation with a sort of “partial membership,” but to build a "new and equal partnership" with the EU.

Within the 12 point plan, the PM says the UK intends to trade “as freely as possible,” but the government has not yet revealed much detail about the upcoming negotiations with the EU. It has however stated that the Brexit package talks will commence by the end of March.

It has taken over six months for the UK government to formulate its coming actions, and for now all eyes are on the UK’s intentions in regards to the single market, the customs union, and its trade relationship with the EU in years to come.

In previous reports, EU leaders have indicated that they will not allow the UK to “cherry pick” benefits such as the single market, while letting go of obligations such as the free movement of people. The PM on the other hand has suggested a curb on migration is one of the country’s top priorities.

According to the BBC, Labour's Sir Keir Starmer said: "Preserving our ability to trade successfully in Europe has to be the priority for business. Staying in the customs union is the best way to achieve that."

The United Kingdom’s decision to leave the European Union (EU) had a seismic impact on the global financial markets, and the geopolitics that sustain them. But what if the so-called Brexit referendum had a different result, and Britons voted to remain in the Single Market? Would we be any better off today? This week Finance Monthly heard from Evdokia Pitsillidou of easyMarkets regarding the titled question.

By any measure, the British pound may have certainly had a better fate had Britons voted Remain. Sterling was trading around $1.48 US on the eve of the June 23rd referendum, and even reached $1.50 just after polling stations had closed. Hours later, sterling was down to $1.33, having lost 10% against the dollar and reaching its lowest level in 31 years.[1]

But the bloodbath was not over. By October, the pound had dropped below $1.22 after newly appointed Prime Minister Theresa May signaled she would pursue a “hard Brexit” from Brussels. It was during this period that the sterling found itself trading at 168-year lows against a basket of other currencies.[2]

Although the pound was on a long-tern downtrend prior to Brexit, it is inconceivable it would have depreciated so quickly had the Brexit vote gone in favour of the Europhiles. Had the UK opted to remain, the pound may be lower than it was on the eve of the referendum, but not 18% lower as it is today. Brexit was therefore not just a defeat for the Europhiles, but for the once mighty sterling.

Brexit had the opposite effect on British stocks. The sharp depreciation in the pound was a boon to the export-oriented FTSE 100 Index, which opened 2017 on the longest run of record highs since 1984.[3] By January 10, London’s benchmark index had established its longest winning streak on record, printing nine straight days of record gains.

British stocks have returned nearly 19% since the Brexit referendum and are up more than 28% year-over-year. Underpinning their growth is more than just a weaker local currency. Less than two months after the Brexit vote, the Bank of England (BOE) slashed interest rates for the first time in over seven years and expanded the size of its asset buys in an extraordinary effort to stave off recession. The Bank’s moves may have been almost unthinkable had the UK voted to remain.

Just a few years prior, experts had tipped the BOE to be the first major central bank to raise interest rates. While the Fed beat it to the punch, it highlights just how unlikely the Bank’s rate cut would have been had Brexit gone the other way.

For policymakers, the hefty dose of monetary easing was justified, given they had just made their biggest quarterly downgrade of growth forecasts on record.[4] Thankfully, the British economy has held relatively firm over the past seven months, but that may to change moving forward once the British government triggers Article 50 of the Lisbon Treaty, the formal mechanism for leaving the EU.

Brexit may have also unleashed a wave of pent-up populism across Europe that is threatening to leave Brussels behind. Following the UK vote, nationalist movements in France, Germany and Italy are awaiting their opportunity to break away from Brussels. With elections in France and Germany coming up, investors are bracing for a potentially volatile year in the market.

The outlook on the global market wasn’t good before Brexit, and it certainly isn’t any better in the wake of the landmark vote. Concerns about free trade, economic growth and financial market stability have been exacerbated by Brexit, and the negotiations for the separation have yet to even begin.

A High Court ruling last month stipulated that Brexit cannot happen without parliamentary assent, setting the stage for a bigger legal battle for the British government. Prime Minister May appealed the decision, but may be upheld by the Supreme Court later this month.[5] For the Brexiters, this may mean a contingency plan. For investors, this may mean greater uncertainty about when, and if, Article 50 will be implemented. And as we know, uncertainty is the bane of the financial markets.

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[1] Katie Allen (June 24, 2016). “Pound slumps to 31-year low following Brexit vote.” The Guardian.

[2] Mehreen Khan (October 12, 2016). “Pound slumps to 168-year low.” Financial Times.

[3] Tara Cunningham (January 10, 2017). “FTSE 100 record longest run of closing highs since 1984 as Brexit fears hurt pound.” The Telegraph.

[4] Catherline Boyle (August 4, 2016). “Bank of England cuts key rate for the first time in over seven years to 0.25%.” CNBC.

[5] Reuters (January 11, 2017). “UK government expects to lose Brexit trigger case, making contingency plans – report.”