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After the New Year, the UK pound and FTSE 100 made significant progress, and according to reports, UK business confidence is at its highest in 15 months, eluding Brexit doomsday predictions.

BDO’s Optimism Index, which indicates how firms expect their order books to develop in the coming six months, increased from 98.0 to 102.2 in December, above its long-term trend. This signals that businesses are continuing to stay resilient following the referendum result, the pre-2017 declining value of sterling and volatility in the global economy.

Finance Monthly reached out to numerous sources this week, to hear their thoughts on the pivotal pushes behind this increased confidence, reasons behind the inaccurate predictions of how the Brexit referendum may have affected UK business, and how this situation may progress in 1Q17.

Alister Esam, CEO, eShare:

Personally, this turnaround wasn’t unexpected – I didn’t buy into the doom and gloom that surrounded Brexit at the time. When we leave the EU, the UK will have a GDP of nearly 25% of the EU and it’s hard to take seriously any worries about us not having a trade agreement. The UK is a great country for business that will soon be released – Europe will remain struggling with inefficiency and a currency that doesn’t work.

People are finally thinking clearly about Brexit and what it means for business. Because the referendum result was so unexpected, people hadn’t really thought through the consequences. Those that did were positive in the first place, and others are starting to see that too, now they have been forced to consider what the implications and opportunities are.

I think people originally focused on the negatives. Now it is really happening they have had to focus on their own plans with positivity and find the not-insignificant opportunities this brings in being able to define our own rules, set our own taxation etc. Furthermore, the negatives were false – people argued leaving Europe meant we couldn’t trade anymore, which was daft. By definition, we will be the most EU-aligned of non-EU countries so we will trade with the EU more than any other non-EU country in the world.

I believe we will still have a tough ride in the short term. There remains uncertainty about how exactly everything will fall into place, and leaving the EU was never good in the short term. – it’ll take time for the benefits to emerge.

The on-going uncertainty is likely to affect UK business optimism over the coming months. European leaders failing to get down and solidify a deal, dragging out negotiations to steal pennies from the UK at the cost of pounds and Euros to both. It’s in no-one interests for negotiations to drag on so let’s hope it can be resolved as quickly as possible.

John Newton, CTO and Founder, Alfresco Software:

A positive side effect of global uncertainty is that it helps to push business resiliency. Enterprises will be open to new competition in a deregulated environment driven by significant political change. This, in turn, will positively force corporations and governments to establish new models, based on best practices.

However, it will be impossible to predict the next five years. Companies should be weary of being too optimistic and instead adapt to become more agile and resilient, whether trade deals are good or bad, inflation or not, and growth or not. Therefore, businesses must focus on bolstering digital core competencies and adopting new ways of thinking at the start of 2017. This will enhance enterprise organisations’ ability to deal with both new threats and beneficial opportunities as they arise. Platform Thinking, will help leading edge enterprises to thrive. It creates a single, scalable, central solution through which organisations can route information, automate processes, and integrate third-party innovation. Additionally, instead of building business plans, new digital enterprises should compose their business outcomes through Design Thinking, which puts the user first and solves problems for them. Using this approach will help enterprises design and adapt digital initiatives to respond faster and engage customers who also face uncertainty.

Deregulation is coming, and enterprises should adapt. For example, Blockchain is impacting our financial markets in the way that party-to-party contracts are managed. In the beginning of 2000, when companies weren’t getting their return on investment in the stock market, they turned to the power of data and peer-to-peer directives. Furthermore, asset-light industries (companies with fewer physical assets, and that tend to require less regulation), will emerge as the marketplace winners. While in the technology industry, computing platforms are evolving so rapidly that it is forcing architects and developers to almost relearn computer science. Cloud platforms, in particular, are changing at astounding rates. New concepts around microservice architectures, deep learning and new data, and compute techniques will again challenge the old way of thinking about things.

UK business optimism is set to be tested but there are huge opportunities for us to adapt and adopt digital transformation objectives. In the Fourth Industrial Revolution, it is no longer about who hasn’t adopted digital technology, but those who have digitally and fundamentally transformed their business, creating a new platform to connect with customers. Think AirBnB and Uber.

Owain Walters, CEO, Frontierpay:

Economic data releases have surprised to the upside in post-Referendum Britain, which is very encouraging to see. Nevertheless, the pound has actually been in steady decline since the result of the Brexit vote and is yet to make a turnaround. What we have noticed, is that the pound has plummeted whilst the FTSE100 has prospered as a result.

We must remember that the FTSE100 is full of companies that derive their incomes from outside the UK, and so as the pound has declined since the Brexit vote, their non-GBP earnings are now worth more. As a result, earnings of the GBP denominated stock in these businesses have improved, however, we must not confuse this with a turnaround in the pound.

I would certainly agree that the catastrophic predictions forecast on the immediate impact of the Brexit decision have been proven wrong. Unemployment continues to fall, GDP growth has continued, and we have even seen some high-profile announcements somewhat quashing forecasts of a halt of foreign interest in British business.

However, we can’t thank the pound for these encouraging developments. In truth, the fact that Article 50 has yet to be triggered means that Brexit has yet to have any significant impact on the UK. What we are currently seeing is a great deal of volatility in the markets as we wait to find out what kind of relationship the UK will ultimately have with the EU.

As long as the future of this relationship remains unestablished and the government continues to keep any details of a deal firmly behind closed doors, I believe it’s too early to tell if the predictions for Brexit will be wrong in the long term. That said, in at least the first quarter of 2017, I think we can expect to see further falls in the pound, a jump in inflation and steady GDP growth of around 0.5%.

Lynn Morrison, Head of Business Engagement, Opus Energy:

We recently surveyed 500 SME decision makers to find out how they had been affected by the Brexit referendum result. We found them to be unmoved, with 72% stating that their confidence was either unchanged or increased. Looking forward, it was extremely encouraging to find that nearly two-thirds of the respondents say they expect their income to increase and even expect to grow their business, in terms of headcount, by up to 20% in the next two years.

Considering the initial market reaction to the Brexit result, as well as the sharp decline in the value of the pound and initial drops in the FTSE250, this positive response may seem unexpected; especially given how many larger, more established businesses have been reporting otherwise. It’s likely that this reaction stems from SMEs’ focus on working within the confines of the UK borders. The Department for Business Innovation & Skills estimates that less than 10% of all small and medium sized businesses export directly to the EU, and only a further 15% are involved in EU exporting supply chains. This makes it easier for SMEs to embrace a new trading landscape, possibly less restricted by EU red tape, enabling them to continue with a ‘business as usual’ mentality.

Another source of SME confidence may be the fact that between the declining pound and the potential changes in our trade relationship with the EU, the UK is likely to look to its own businesses to help fill the gaps on products and services that had previously been imported.

Making up 99.3% of all private businesses in the UK, and with a combined annual turnover of £1.8 trillion, SMEs are the lifeblood of our country and their success is invaluable. I think it’s therefore hugely encouraging for the future of British business, and indeed our future relationship with the EU, that SMEs are expecting to not only survive the result of Brexit, but also to thrive in the coming years.

Salvador Amico, Partner, Menzies LLP:

Levels of business confidence were high before the Brexit vote in June 2016 and many businesses were optimistic about the future, bolstered by a strong Pound and UK economy. The Brexit vote result caught many by surprise and created shockwaves across UK businesses.

However, since the vote, it is evident that the world hasn’t ended and that things have moved on. Businesses, particularly those with extensive export operations, who were concerned pre-Brexit vote, have found renewed confidence brought on by the weak Pound and continuing enthusiasm by suppliers and customers to trade with UK businesses.

The UK economy is fundamentally strong and is still considered a world leader in many sectors such as tech and manufacturing. Even the property sector, which is often considered to be struggling in the UK, is benefitted from continuing inward investment, brought about by a weak currency.

Whilst the weak Pound has certainly helped boost business confidence, the UK has proven itself to be a good place to invest for quite some time. Low tax rates and a competitive market presence, combined with strong connections and a creative attitude have long made Britain an attractive place to do business.

Optimism indices have likely been affected by a general feeling that the world hasn’t ended post-Brexit vote, particularly with the majority of business owners who voted for Remain. Many of these businesses are now feeling that everything will be fine.

There has been a real push from businesses in some sectors to break into new markets and to find new customer bases abroad. Whilst there is still much more work to be done, the sense of optimism brought about by a potential increase in competitiveness caused by leaving Eurozone, is hard to ignore.

Dropping tax rates along with the opportunity to introduce new policies to support UK businesses will further boost confidence across the board.

The effects that a weakening Pound would have were perhaps underestimated by some financial commentators, and in particular sectors such as manufacturing, businesses which export will currently be feeling very positive.

It is also important to note that it is perhaps too early to say that the predictions were wrong and we may find that a year down the line the UK economy will look significantly different. This was the case with the effects of the financial crisis in 2008, where it took several years for a ‘new normality’ to resume.

Once Article 50 is triggered it is possible that we may see a further slight dip in confidence if we see the Government move towards a hard Brexit, effectively closing off free access to the EU trade zone.

However, once negotiations begin it will be the media who will play a large part in controlling business confidence through the ways positive and negative news is reported in relation to specific business sectors.

We may see that the Pound is going to remain weak for some time and exporters should make the most of it while they can. There is also still a lot of activity in terms of inward investment coming into the UK and lots of parties looking to make deals and secure contracts. Capitalising on this investment, along with looking to secure the best talent possible – regardless of location – will be key for UK businesses in the coming months.

Problems faced across the Eurozone are very likely to have a knock-on effect for the UK economy and should not be overlooked. Upcoming elections in France and the Italian financial crisis, combined with any slow-downs faced by the EU economy could have a larger impact than many people realise.

The strength of the EU market will be particularly important for businesses selling goods abroad and if that market cools or becomes more turbulent, the ripple effect will be experienced by the UK economy.

Omar Mohammed, Operations and Financial Market Analyst, Imperial FX:

It was a turbulent year in terms of political turnarounds – the unexpected Brexit decision and the unexpected outcome of the U.S election made 2016 one of the most unprecedented years. That caused a lot of loses, suspension of business, re-planning of strategies.

The indices markets in UK and US were on record highs after the Brexit. For instance, FTEE100 is mostly American firms which mainly depends on USD, so whenever the Cable (GBP/USD) is down the FTSE100 is up.

Predictions wrong about the impact of Brexit because of inaccurate opinion polls; both the online and phone polls predicted the majority would vote to remain. The length of the polls needs to extend beyond three days in order to reach hard to reach voters. The less well educated are under-counted in the polls while graduates are hugely over represented.

The first quarter of 2017 expected to be volatile and complicated. The cause of this disarray could be that May herself is muddled. While vowing to make Britain “the strongest global advocate for free markets”, the prime minister has also talked of reviving a “proper industrial strategy”. This is not about “propping up failing industries or picking winners. Her enthusiasm for trade often sits uncomfortably with her scepticism of migration. Consider the recent trip to India, where her unwillingness to give way on immigration blocked progress on a free-trade agreement.

In coming months, UK business will be affected as they will be waiting mid-March for the EU meeting to triggered article 50 which involve heavily on free-trade market and the free movement of European citizens.

Markus Kuger, Senior Economist, Dun & Bradstreet:

Ever since the Brexit vote, the sentiment in the UK has been a melting pot of distinctly differing viewpoints. From Pro-Brexiters to remain campaigners, businesses have been expressing trepidation as the worldwide markets continue to fluctuate. The sterling may have recovered somewhat towards the end of 2016 but has quickly dropped in value, following Theresa May’s hint that the UK will be looking to secure a ‘hard Brexit’. The 14.4% rise that the FTSE 100 posted over the course of last year looks to be a distant memory for the UK; a reason for the end of year boost was arguably due to overseas businesses.

The plain fact is that Brexit has not happened yet and Britain has yet to leave the EU. Against his promise (on which our post-Brexit vote scenario was built on), David Cameron did not invoke Article 50 in the morning hours of 24 June but resigned instead, which has temporarily helped to minimise the effects of the Brexit vote. However, Dun & Bradstreet still expects the Brexit vote to have a significant negative impact on the British economy, especially as ‘hard Brexit’ is now the most realistic scenario.

At the moment, the export-orientated sectors of the economy are benefitting from the weak pound, while domestically-orientated businesses are still being supported by robust consumer spending. That said, the invocation of Article 50, expected towards the end of March, and a potential ‘hard Brexit’ will test the fragile stability of the UK economy, especially as sharply rising inflation rates will reduce households’ disposable income. We strongly recommend that businesses ensure they have the risk management measures in place to deal with the changes. Ensuring that the proper risk solutions are implemented will best prepare a business for any potential market fluctuations.

Although we now expect the government to lay out its Brexit roadmap in the coming weeks, uncertainty will remain high as it will remain unclear if the UK’s and the EU’s positions are compatible and whether a compromise regarding migration controls and market access can be found. Developments in financial services are likely to have a huge impact on the broader UK economy – the financial services sector, including professional services, makes up 11.8% of the UK’s GDP. The impact of firms looking to relocate outside of the UK could have a knock-on effect that leads to further disruption. Our own recent research indicates that 72% of senior financial decision-makers are planning for change post-Brexit. Against this background, we expect businesses to continue to operate smartly and cautiously, while overall prospects in the UK are likely to remain extremely unpredictable in Q1 and beyond.

For context, Dun & Bradstreet recently released a survey on business confidence after Brexit. The results showed that:

(This November 2016 research surveyed 200 senior financial decision makers from medium and large enterprises in the UK.)

Kerim Derhalli, CEO and founder, invstr:

Positive initial data which emerged in the aftermath of the EU referendum has been the catalyst for an ongoing good feeling among businesses, with positive momentum offsetting any continuing political uncertainty.

The UK economy performed well in the run up to June 23, with GDP growth at 2.5%, which helped to cushion any perceived negative impact. Since then, businesses have been buoyed by positive consumer data which has remained broadly optimistic.

UK businesses focused on exports – many of which feature in the FTSE 100 – have enjoyed a boost from cheaper sterling, and are becoming more competitive overseas. Cheaper comparative labour is also having a knock-on positive affect for exporters.

In addition to this, the UK services sector contributed to a 0.6% growth in the economy in the three months following the Brexit vote, fuelling confidence through the end of 2016 and into 2017.

What many observers failed to recognise in the build up to, and immediate aftermath, of the Brexit vote, is that the UK and London in particular still remain highly attractive to international investors.

The core fundamentals that make the UK a good place to do business are still present, and will remain whether the country is within or out of the EU.

The City of London is a world leader in attracting business talent, legal institutions are among the most respected in the world, and UK universities lead the way in innovation and research, continuing to draw students from across the globe. Plus, the UK has the lowest corporate tax rate in the G7 – making it attractive for businesses – and the commercial property sector remains a desirable asset globally.

Predictions underestimated the strength of the UK economy, and the country’s role as a global provider of world-class goods and services. The UK has plenty of reasons to remain optimistic about the future.

Political uncertainty will be the main driver behind any lack of optimism for businesses in 2017. At the moment, the Government looks no closer to confirming any specifics around the terms of agreement between the EU and the UK and, if uncertainty drags on, it could prove a drain on confidence.

That said, a cheaper pound and better global growth prospects, as well as all of the positive business investments we have already seen throughout the end of 2016 and early 2017, will help to offset the uncertainty. This, in combination with the ongoing good data, will serve to strengthen business and consumer sentiment.

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

Jean Liggett, CEO of visionary property investment consultancy, Properties of the World, has revealed her predictions for the UK property market in 2017. Celebrating 5 years of experience selling investment properties, she has identified the key trends we are likely to see next year. Liggett comments,

"The dual impact of Brexit and tax changes in the UK are going to be felt in 2017. It's going to be a very interesting year for the property sector, with the usual laws of supply and demand encountering some significant interference from external political and economic factors. This means some new winners when it comes to popular asset classes, although of course some traditional investment opportunities will never go out of style (at least, not for the foreseeable future!)."

With changes to the buy-to-let investment rules brought in under ex-Chancellor of the Exchequer George Osborne, Properties of the World has found that investors are finding the residential buy-to-let market to be less profitable.

The company experienced a surge in buyers who already have traditional residential buy-to-let portfolios moving to purchasing hotelsstudent accommodation and care homes for the first time in 2016.

Jean also found that buyers who were just starting their property portfolio were choosing these emerging asset classes over residential buy-to-lets, due to the substantially higher returns on offer and the lack of additional costs during ownership. This trend is expected to ramp up significantly in 2017.

The remaining of second home stamp duty for buy-to-let investors will also continue to impact buy-to-let investors in 2017 as it has done in 2016, with lower priced properties of Greater London and areas beyond the M25 increasingly drawing investors away from the centre of the capital. Areas such as Luton and Slough are set to benefit, as are cities further north (most notably Birmingham, LiverpoolManchester, Sheffield and Bradford). As Properties of the World's Jean Liggett points out,

"Investors can save on stamp duty at the same time as achieving higher yields than are on offer in central London."

When it comes to Brexit, one area of impact will be the interest of overseas investors in the UK in 2017. Sterling is languishing at its lowest rate against the dollar for decades, which creates opportunities for property investors buying in foreign currencies to make substantial savings by purchasing in the UK. With further currency fluctuations expected around the Article 50 triggering process in 2017, overseas investors are likely to be poised and ready to pounce.

Brexit is also likely to impact on property sales in the UK in 2017. Despite the interest from overseas, the Properties of the World team believes that the number of residential property sales in the first six months of 2017 will be lower than in the first half of 2016.

Despite a forecasted lower number of sales, there is likely to be positive news when it comes to prices. Although residential buy-to-lets will be more heavily taxed than before, there continues to be a chronic shortfall of properties in the UK, coupled with increased demand. Put simply, there are not enough properties being built to fulfil demand.  This under-supply is expected lead to increased prices in 2017 or, in the worst-case scenario, properties prices remaining flat.

Finally, and again showing the effects of the Brexit process, Properties of the World believes that developments offering a fixed rate of return will boom in 2017. Fixed returns, along with no additional costs during purchase and ownership, provide investors with peace of mind and mitigates risk in an increasingly uncertain world. When investors are buying to supplement their income, knowing how much money they're going to be getting is essential.

Whatever happens, 2017 is certainly going to be a testing year for the UK property sector, but as Jean Liggett reminds us,

"Challenging circumstances can create exciting new opportunities for investors. Political change can have a big impact on property markets, but that doesn't mean the impact will necessarily be negative. Where one asset class or location may miss out, another will surely come along to reap the benefits!"

 

(Source:  Properties of the world) 

With Christmas shopping in full swing, it begs the question, ‘How are the UK’s SMEs fairing this season, despite Brexit?’ Avalara asked this question among UK SMEs in a recent survey.  We found that, despite Brexit, more than 60% of UK SMEs say they won’t be making adjustments to their business this season.  In fact, more than half (54%) are not concerned about Brexit impacting their Christmas season sales.  Furthermore, 75% of SMEs said they are ready for the Christmas shopping season.

The Parliamentary vote on Brexit had added further confusion on the likely date of Brexit.  While many companies may have already started drawing up plans, including exit strategies, the exact exit date of Brexit had been put in doubt given Parliament’s involvement in November.  It is no surprise, then, that many businesses have chosen to take a ‘business as usual’ approach to the Christmas sales season.

Our poll also uncovered that:

 

To learn more about Avalara or to follow the latest Brexit news impacting the trade/VAT industry, please visit www.vatlive.com.

 

2016 has been quite a year for global property markets. China’s slowdown, the impeachment of Brazil’s president, the Brexit referendum in the UK and the US presidential election have all contributed to a rather tumultuous year. Will property markets fare any better in 2017? And where precisely are the hotspots that bear watching as the new year unfolds? Ray Withers, CEO of Property Frontiers reveals all…

UK – era of the staycation

In 2009, during the height of the recession, UK residents made 15.5% fewer overseas trips and 17% more domestic trips. Since then British holidays are still gaining in popularity: the number of domestic trips in 2015 was up by 11% on the previous year. The Brexit referendum’s repercussions may well change how we experience summers to come. This is the new era of the staycation.

While residential rental yields are likely to remain strong (outside of London), with so many unknowns house price changes remain tricky to forecast. For UK property investing in 2017, we believe that holiday homes, coastal cottages, and hotels will be popular with investors looking for a favourable stamp duty environment, high yields and insulation from market uncertainty. To maximise returns, look for regions with natural or cultural appeal, unflagging visitor numbers, and an undersupply on the hospitality market.

UK – the hangman loosens the noose on landlords

Philip Hammond’s 1994 election material slipped in a humdinger: ‘hanging for premeditated murder.’ The question is: when it comes to fiscal policy impacting landlords, will the new Chancellor play the hangman or the handyman?

With rock bottom mortgage rates and rent increases of 19% forecast for the next five years, it is still a good time to be a landlord. The lack of supply on the market could well spell a good opportunity for investors. University towns like Bristol and Cambridge and secondary cities like Liverpool, Manchester and Sheffield should remain on the radar for strong yields next year.

Europe – secondary cities withstand shaky politics

Europe’s fractious politics will have a big year in 2017. For an early indication of how those decisions might affect property markets, look to Italy and Austria in the aftermath of their December 2016 votes. The defeat of Renzi’s constitutional referendum in Italy, for example, could cause problems for struggling banks and infect the wider economy, including impacting mortgage lending.

The victory of the liberal over the far-right candidate in Austria’s presidential election, however, favoured stability and European integration. Given that Vienna is unlikely to end its seven-year streak atop Mercer’s global quality of living ranking and its housing market is just 20% owner occupied, the result may well safeguard the city’s growing reputation as a buy-to-let hotspot.

Other cities we think merit attention for high yields in 2017 include Lisbon (thanks to tech clusters and the historic centre), Utrecht (enjoying the Netherlands’ continent-beating 6.57% yields but without Amsterdam’s bubbly prices), and Barcelona (still down on its peak, with growing business appeal).

Europe – Brexit’s beneficiaries?

When (if?) Britain triggers Article 50 in 2017, will we see bankers transfer en masse from London to Amsterdam and startups relocate from Manchester to Hamburg? While large scale migrations are unlikely, the pressure will be on for British cities to reassert their global appeal if the property market is to bounce along at 8% growth again in 2017.

European cities will be putting up a strong fight, and battling to skim off what talent they can. Frankfurt and Paris will make particularly aggressive bids, but they will need to need to drastically improve their supply of office space if they are to become truly viable alternatives.

We may see a new trend for Brits doubling up their holiday or retirement homes as tickets to visa-free travel. Spain and Portugal could see a steep upswing in applications for their ‘golden visas.’

North America – punching above its weight?

The US rocketed past the UK as the stage for the biggest political upset of 2016 with the election of Donald Trump. The S&P Case-Shiller home price index ends the year at a new record peak and such punchy growth will likely continue into 2017. Even if the market proves to be overheated, more responsible lending means a sub-prime-scale implosion is a very distant possibility.

The other theme of US house price growth, its patchy distribution, may also become more pronounced. New York home values appear comatose in comparison to Portland and Seattle, where prices grew by 12% and 11% respectively in the year to September. Yet lunatic price hikes across the border in Canada, make even those numbers look comparatively demure; Toronto closes out 2016 leading the Teranet and National Bank of Canada index with an insane growth rate of 34.6%.

Further afield

South America may become a less daunting investment prospect in 2017, with Brazil and Argentina poised to shake off the political deadlock of last year and Colombia coming closer to peace. Our pick for an enticing investment target is Peru, where a new business-friendly government could revive the property boom and Lima’s hotel market should benefit from fast-growing visitor numbers, a generous tourist spend, and limited supply coming on to the market.

In Africa and the Middle East, the price of oil has played havoc with economies. Property markets could well see a boost if the price of oil rallies in 2017. This could benefit countries like Ghana and Uganda, where the economies are sufficiently diversified to avoid the pitfalls that accompany surprise discoveries of oil. Land development is already rife in their respective capitals of Accra and Kampala.

Investors have been glued to Iran’s gradual unfurling onto the global stage and will continue to look on in 2017, though caution is advised until President Trump’s official stance makes itself clear.

In Asia, Indonesia and Vietnam are making encouraging moves to attract foreign investors, and boast the economic growth to back it up. 2017 will be crucial for testing how well these new rules work in practice, and early birds who plan appropriately could catch the juiciest worms.

China might decide to employ state intervention for the forces of good to re-jig its land imbalance and loosen the notoriously prohibitive hukou residency permit system. This would allow demand and supply to better align and let some steam out of the Chinese property market’s swelling paper lantern.

Finally, our client database reveals a growing share of Indian investors contending with their Chinese counterparts as the dominant group of family buyers casting a wider net for safe havens overseas. Though the UK has not lost its appeal, we might expect to see them target regions closer to home as traditional Western markets start to feel more volatile.

(For more information please visit Property Frontier)

A commentary from Rick Nicholls, Managing Director, Bastien Jack Group Ltd, UK property developer.

In short, we have opportunity.

Initial shock at the prospect of leaving the EU sent the markets into decline, but have they not reacted pretty much as anticipated? Never letting a crisis go without opportunity, selling high to force a low, and then buy back? Since then there has been some indication stability is returning to the markets though GBP to USD and Euro are still trading lower. This is a good thing for UK exports, making them more competitive, assisting those companies that rely on export markets to grow. The UK vote for Brexit probably doesn't mean that the housing market in the UK is about collapse either. While some uncertainty in the short term may reduce house price growth, for the longer-term property investor, this could be a good opportunity for investing.

The foreign property investor has a boost in value-for-money

In the 24 hours after the Brexit vote, the value of sterling fell on foreign exchange markets. Not by as much as predicted but by around 6% against the euro and 8% against the dollar. As I'm writing this, the pound is now worth €1.11. This fall means the European property investor has more sterling to spend.

Demand for property, specifically in London from foreign investors is still likely to increase, interest has been high from China and Asia as their currency exchange has automatically allowed them a discount on current prices. This though is likely to bea short window of opportunity as we see markets recover from the initial shock.

Domestic demand will remain strong

Demand from home buyers and renters probably won't collapse either.

There is concern that demand for housing will fall in London and the UK. However, parliamentary research produced for the 2015 Parliament put demand at between 232,000 to 300,000 new housing units per year through to 2020. Demand for new homes is exceeding supply by around 150,000 every year. This demand, fed by the number of new households created each year, is unlikely to fall below the level of supply.

Immigration will probably remain strong

One of the main negotiations the UK and EU will have to discuss is the free movement of people. Despite the ‘Leave' campaign suggesting a limit to immigration, we now understand there needs to be movement but objective negotiations will have take place. This will form a significant part of the negotiations to leave the EU.

Outside the EU, the Prime Minister's current visit to India has the subject of immigration firmly on the agenda for a post Brexit trade deal.

Fundamentals of the UK Property Market

The uncertainty of the exact outcome of Brexit may cause the property investor a little nervousness, but the fundamentals for UK property remain strong.

In terms of capital growth, there are a number of comparable data choices but the Real House price tracker provides more meaningful guide to house prices and has been adjusted for the effects of inflation over the same period. Results confirm the increases in house prices have risen faster than inflation, and includes the last recession where the fall can be seen as a correction when compared to the overall property performance.

There has been widespread comment as to the likely effects on house prices, with falls of between 5% and 10% for areas outside London, though little evidence can be found to support this so far.

The BTL investor has also seen positive movements since 2001 with the size of private renters beginning to grow again.

Annual rent rises too have accelerated in recent years and these are not limited to London. Bristol and Brighton both enjoyed increases, averaging circa 18% in 2015 compared to the previous year. The insurer Homelet reported similar rises in the North (Newcastle upon Tyne and Edinburgh) with around 16% over the previous year. Ultimately the increases are attributable to what's happening in their specific area and will be influenced by strong fundamentals. Perhaps Hull can expect some positive growth when it is crowned City of Culture?

Rents in London have continued to rise with greater pace than other areas in the UK but have slowed since 2014, therefore a narrowing of the rent inflation gap between London and the rest of the UK.

Even with the recent policy change for buy-to-let investors paying additional stamp duty, more people have turned to BTL investments perhaps as an alternative to low interest rates, bolstered with the knowledge the pace of house building has not kept up with demand therefore sustaining their investment. At the time of the referendum result, there was speculation the base rate would reduce from 0.5% to 0.25% which did take place in August. The Bank of England indicated they would consider reducing further if the economy worsened, which so far has not been the case. It was also confirmed at the time, they also would add money to support confidence and restrict banks freezing liquidity, if not this would probably cause a further credit crunch and restrict mortgage finance. The governor of the Bank of England, Mark Carney, confirmed the reserve of £250bn can be made available if required.

Carney further commented the substantial capital held and large liquidity gives banks the flexibility to continue to lend to businesses and individuals even during challenging times. This suggests provision and safeguards are in place to maintain current lending to suit demand.

Since the referendum, the markets have rallied well and only recently fallen as investors are perhaps concerned that central banks around the globe are easing up on the monetary policies given the uncertainty of the US election result.

In the UK, mortgage approvals by the main banks increased in September after a 19-month low in August. They were lower than the year before but speaking with our local agents, they suggest it's down to a lack of supply of new build property rather than purchasing confidence.

There are four main areas for focus as we get to grips with the prospect of the UK outside the EU.

1) Calm - we have some indication this is already with us; the markets do seem to have calmed. This is probably due to all the positions the markets took on ‘Remain' have now well and truly played out. It's not over yet though, the volatility is set to continue until Article 50 has been triggered and a new directional plan from the government for the UK to leave is known.

2) Change - Nothing ever stays the same, what works for today may not be right for tomorrow. A pertinent example is Kodak, they tried to ignore new technology hoping it would go away by itself on the basis of it being too expensive, too slow, too complicated etc. It wasn't and their market changed irreversibly in a relatively short period of time, moving from wet film to digital technology.

3) Opportunity - Leaving the EU does provide opportunity. With price correction, there is opportunity to procure better land deals than prior to the referendum, as there may be fewer developers with available funding. Contractors had full order books and build costs had become very high prior to the referendum. We are aware some development contracts have been cancelled as a result of Brexit. Therefore, there might be more opportunity to reduce build costs as price elasticity plays out. The current volatility will ease. The fact the UK has to build more houses to meet demand won't change.

Bastien Jack Group Ltd has a strong project pipeline and always procures sites which have strong fundamentals and in areas where people want to live. There is a huge amount of due diligence which goes into every site appraisal including courting many local agents and advisors to confirm local demand and Gross Development Values. Speaking with agents in our pipeline areas, they have confirmed confidence is still strong and enthusiastic house viewings are still going ahead. As long as lending is still being offered and liquidity remains within the economy, there remains a great opportunity for us to progress.

(Source: Bastien Jack Ltd)

In the advanced economies, growth has generally remained mediocre. International repercussions of Brexit have thus far been limited to the effects of a further fall in sterling. In the United States, recent data have been mixed: the appreciation of the dollar since 2012 has remained one restraining factor and political uncertainty ahead of the elections may have been another. In the Euro Area, there has been no progress since the spring in reducing high unemployment. Even where unemployment is low – notably the United States, Japan and Germany, as well as the UK – limited wage pressures raise questions about the true tightness of labour markets. Inflation has remained below targets, by wide margins in the Euro Area and Japan. Inflation is closer to target in the US, and the Fed is widely expected to raise rates in December for a second time in the current upturn.

The performance of some key emerging market economies has improved: deep recessions in Brazil and Russia are easing, with inflation falling towards targets. The gradual slowing of China’s GDP growth seems on track, but a rise in credit expansion has added to financial risks.

One set of risks that has increasingly come to the fore concerns monetary policy in the advanced economies. The scope for easing monetary policy further is limited. It could pose increasing risks to financial stability, including by threatening the profitability of banks. In addition, central bank asset purchases are increasingly constrained by limited availability of suitable assets. A further, developing, preoccupation as the economic recovery matures is that low interest rates could leave inadequate ammunition for central banks to counter recession if it were to strike. These considerations point to the need for more balanced macroeconomic policies, including expansionary fiscal policy in many cases and structural reforms that boost demand as well as potential output.

Risks related to the threat to the internationally open global economy arising from the advocacy of protectionist, nationalist, and inward-looking policies, including by ‘populist’ politicians, have lately gained increased attention. This is occurring in the context of already slowing expansion of international trade and finance. Growth in the volume of world trade since the global financial crisis has been half the average rate of expansion during the previous three decades, and has barely matched the growth of global GDP. History carries many examples of economic prosperity being stymied by defensive, inward-looking policies, and action to resume progress with international economic integration is vital.

Iana Liadze, Research Fellow at NIESR, said “With our forecast of world output growth unchanged for this year at 3 per cent we are witnessing the slowest annual growth since the 2009 recession. Even if world growth strengthens to 3.6 per cent in 2018 as we expect, it will remain slower than before the financial crisis. Low interest rates and the limited availability of suitable assets for central banks to purchase suggest the scope for easing monetary policy further is limited. As long as this situation persists it will be up to other arms of macroeconomic policy to minimise the effect from any future recessionary shock.

 

Source: National Institute of Economic and Social Research

Germany’s small businesses are the most optimistic about their own economy according to the inaugural Global Business Monitor report from international business funder, Bibby Financial Services (BFS).

Nearly three-quarters (73%) of German SMEs say their national economy is performing well in the global study that surveyed business owners in the US, Germany, UK, Poland, Hong Kong and Ireland.

More than two thirds (67%) of Irish SMEs are confident about the local economy. German and Irish SMEs are also most confident about the future with 57% of SMEs in both markets expecting sales to grow in the year ahead.

Conversely, less than one in five businesses in Hong Kong (15%) say they are confident about their local economy, with less than a quarter (24%) expecting sales to increase in the next 12 months.

Steve Box, International CEO of Bibby Financial Services said: “Germany is often seen as the industrial beating heart of Europe. Our research underlines the confidence of the small businesses in Europe’s largest economy as the EU looks to agree its shape post-Brexit.

“It is a different picture for the economy in Hong Kong where the majority of business owners are pessimistic about future sales and the local and global economies.”

The study reveals the sentiment of global SMEs in areas such as investment, confidence, challenges and opportunities, overseas trade and payment terms. In relation to international trade, findings show that small businesses in Hong Kong are three times as likely (69%) to export as those in the UK (22%) and seven times as likely as in the US (10%).

Steve added: “Due to its geographical location, Hong Kong is an important gateway to trading activities between China, the US and Europe. Its economy is highly export driven and this may explain why confidence is subdued during a time of economic change and significant currency fluctuation.”

Across the study, almost a quarter of businesses (24%) said that foreign exchange fluctuations are the biggest challenges they face in relation to international trade. For SMEs in Poland and Hong Kong, figures rose to 46% and 37% respectively.

Despite pockets of confidence in their local economies, the research reveals that nearly three-quarters (73%) of all SMEs have concerns about the global economy, with those in the US (83%) and Ireland (82%) the most concerned.

Steve concluded: “It’s clear that confidence in the global economy has suffered due to macro-economic and geo-political events in the last six months. The real question is for how long will confidence be affected?

“It is likely that the UK’s formal exit from the EU – commencing with the triggering of Article 50 by the end of March next year – will have further economic consequences that will be felt around the world.

“As the world shapes itself with a new US president and an EU without the UK, it is those small businesses that can adapt to changing domestic and international trading conditions that will be best placed to profit and grow in 2017.”

Other key findings of the Global Business Monitor report include:

Challenges

Investment

Payment terms

 

Source: Bibby Financial Services

by Ben Brettell, Senior Economist, Hargreaves Lansdown

The UK economy shook off Brexit-related uncertainty to post 0.5% growth in the third quarter. This is down from 0.7% in Q2, but far better than the 0.3% economists had feared.

The ONS said there was little evidence thus far of an output shock in the immediate aftermath of the vote.

Initial GDP estimates should always be taken with a pinch of salt, as they are based on less than half of the data which will ultimately be available, and are therefore subject to revision in the coming months. Nevertheless it’s difficult to interpret today’s figures as anything other than very good news for the UK economy.

Some will be concerned about the absence of any rebalancing of the economy away from the ever-dominant services sector, which grew 0.8% while everything else contracted. However, I don’t see this as a problem. In an increasingly global economy, individual countries need to specialise in industries where they have a comparative advantage. It’s clear to even the most casual onlooker that the UK has a comparative advantage in services, and therefore it shouldn’t come as a surprise that ever more resources are allocated to that sector of the economy.

The Bank of England may deserve some credit for acting swiftly to bolster the economy in the months after the referendum, though of course it’s impossible to predict what would have happened in the absence of any action. What today’s release does do is pour cold water on the chances of a further rate cut next month. In August the Bank said the majority of MPC members expected a further rate cut later this year, but at the time it was forecasting zero GDP growth. A stronger-than-expected Q3 performance is likely to mean the Bank leaves policy unchanged when it meets in November.

 

By Don Smith

Despite a run of better than expected UK economic data since the Brexit vote – including 0.7% second-quarter expansion, beating estimates – financial markets are increasingly concerned about the outlook for the country’s economy and its currency.

This can be seen most dramatically in sterling’s plunge on the foreign exchanges, which shows little sign of abating. On a trade-weighted basis, the pound declined 15% between the June 23 referendum and October 12, while it has moved from 0.76 to 0.90 versus the euro over the same period.

Some bounce back from this sharp slide appears likely, but there’s little doubt that sterling’s underlying trend remains firmly downwards.

Although the UK economy should steer clear of recession, the anticipated broader effects of Brexit may soon become more evident. As a result, growth is expected to slow next year.

Consequently, the Bank of England (BoE) may cut interest rates further to provide additional support. The next move would likely be a decrease to 0.1% (from 0.25%), but this might not occur until mid-2017.

With interest rates already so low, and an uncertain path ahead for the economy, the BoE will exercise caution when deploying the dwindling number of arrows in its quiver. It will therefore likely attempt to influence interest rate expectations ahead of any actual move, continuing to issue a very dovish message to the markets.

While inflation is expected to keep rising, the BoE will continue to regard this as a short-term phenomenon, which doesn’t challenge the longer-term low-inflation outlook.

At the same time, sterling’s steep fall was largely unexpected. The pound is being driven by psychological forces, technical moves and speculative reasoning, all of which can be especially volatile and therefore very hard to predict.

The significance of the UK’s decision to leave the EU, and very likely the EU single market, is immense. According to leaked Treasury documents, a so-called “hard Brexit” could cost the UK up to €73 billion annually, leading GDP to underperform by as much as 9.5% in the coming 15 years.

It’s worth noting that the economy is highly dependent on trade and that, in contrast to the euro, the pound operates without the protection of a solid current account position. With the potential to fall a further 5-10%, sterling is thus left hugely exposed as we move into a period of major change for the UK’s network of trading relationships.

As far as its impact on the domestic economy is concerned, this is something of a double-edged sword: good for exporters but bad for consumers, whose spending power will likely weaken due to the effect of a short-term burst of higher inflation as import prices increase.

While there may be a backdrop of solid economic data, sterling remains vulnerable due to the current account position of the UK, which runs a deficit of about 7% of GDP – by far the largest in the G20 and, historically, the largest on record.

This deficit reflects, in the simplest terms, the fact that importers have to sell sterling in order to acquire the foreign currency that pays for goods and services sourced overseas.

As a result, a huge amount of sterling flows into foreign currency markets due to the sheer volume of UK imports in relation to exports. This, in turn, makes sterling’s value in the foreign exchange markets heavily reliant on the purchase of UK financial assets by overseas investors, who have to then swallow the loss.

Without these purchases, the value of sterling would fall even further. BoE Governor Mark Carney aptly captured this sense of vulnerability in his pithy comment about sterling relying on the “kindness of strangers.”

Sterling consequently now appears more vulnerable than any other major currency to investor sentiment.

In search of reasons for the pound’s recent plunge, the early October announcement by Prime Minister Theresa May that Article 50 of the Lisbon Treaty would be signed by the end of the first quarter of 2017 surely helped focus investor sentiment on the actual exit event.

Brexit now looks likely to happen no later than the second quarter of 2019 – although, subject to agreement with the rest of the EU, the deadline could conceivably be extended. Given the current rhetoric from key EU politicians, however, there are few signs that the bloc’s attitude to negotiations will soften.

It’s little wonder that markets are increasingly fearful.

Indeed, sterling’s recent plunge may prove just a harbinger. Today, the UK could well be enjoying the relative calm before the real storm that lies ahead.

----------------------------------------------------------------------

Mr. Smith serves as London-based Chief Investment Officer at Brown Shipley, a member of KBL European Private Bankers. The statements and views expressed in this document are those of the author as of the date of this article and are subject to change. This article is also of a general nature and does not constitute legal, accounting, tax or investment advice.

Tax professionals already anticipate an expected onslaught of VAT changes resulting from the United Kingdom’s exiting the European Union, according to a recent poll by Avalara EMEA, a leading provider of cloud-based tax compliance automation for businesses of all sizes.  51 percent project increased complexity in VAT compliance, and paying more in VAT and customs (68%).  While 53 percent of those polled expect substantial impact on their businesses, more than half have not yet begun planning for Brexit at all (54%).

“Now more than ever, VAT automation becomes key to ensure businesses are prepared for the new requirements of Brexit,” said Richard Asquith, VP of Global Indirect Tax, Avalara EMEA.  “While the timing remains uncertain, businesses can start to prepare now by ensuring they are set up with the right technology.  VAT automation platforms ensure organisations remain compliant with regulations and do not suffer the burden of huge losses in the midst of navigating a new trade environment.  Updating systems now can ensure a seamless transition once Brexit arrives.”

The poll also uncovered the following findings:

EU VAT Implications

Avalara anticipates many areas of shared VAT practices will be reviewed and revised as Brexit negotiations take place.  Some of those include the following:

For more information on Avalara and ongoing news on Brexit and the tax industry, please visit www.vatlive.com

Poll conducted on 13th September 2016 at Avalara’s VAT Summit with 60 VAT specialists.

UK Services PMI has risen by the 5.5 points to 52.9, the biggest ever jump in the survey’s 20 year history.

The rise is a sharp bounce back from the 47.4 reading taken in July in the immediate aftermath of the EU referendum.

The pound jumped almost a cent against the dollar on the back of the news.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown comments:

‘The service sector is the engine room of the UK economy, so a return to form represents a welcome vote of confidence in the country’s financial prospects. With parliament now back from summer holidays, the serious business of negotiating withdrawal from the EU begins in earnest. Brexit is going to be a lengthy process, with plenty of ups and downs along the way, so economically speaking it’s still way too early to start counting any chickens just yet.

It’s also worth bearing in mind that dramatic bounce-backs are often a reflection of the depths of previous despair, rather than of optimism over the future. In terms of services output, today’s reading is simply in line with survey results earlier in the year, and it is last month’s sharply negative reading which is the outlier.

Since the referendum economic indicators have by and large held up pretty well, and if the positive mood music continues that should put a spring in the step of the pound on the currency markets. More robust economic data would also make the central bank think twice about any further loosening of monetary policy, and may also play its part in determining the future of austerity, as we approach the new chancellor’s Autumn Statement later on in the year.’

(Source: Hargreaves Lansdown)

Today the Bank of England has decided to take on the role of a supportive friend following Brexit with a 0.25% rate cut (from 0.5%) and some more quantitative easing. That’s basically when the Government prints money and flushes it into the economy, trying to give it a double espresso. What does this mean for the rest of us?

Savers
It’s another nail in the coffin for savings rates. Any saver who had hoped that we might revert to a time when you actually got paid some meaningful interest for holding money in a savings account will be sadly disappointed. Santander’s 123 account is still probably your best bet for cash balances of £3,000 – £20,000 in an easy access account. They have a £5 monthly account fee so check the interest outweighs the charges. Nationwide pay 5% on balances of up to £2500. But do keep an eye on things over the next week as we’d expect to see changes. More recently NatWest has told business customers that it might charge them for the privilege of holding their cash – welcome to negative interest rate discussions which feel counter-intuitive to the world order we know!  Watch this space….

Investors
Stock markets have generally liked interest rate cuts. Why? Well the basic thinking is that it’s cheaper to borrow for businesses, so companies large it up and hire more, build more and make more. And customers are more likely to go on spending sprees.

To all those cheesed-off savers: although the stock market bounces around, you can still get about 3% – 4% in income every year from some funds and stocks in the UK. This income is what we call a yield. And as well as the income (not guaranteed or fixed rates) you also have exposure to the investments themselves. Which can go up and down.

Have a look at this for details on Equity Income funds we like. 25% of Brits stick in cash and are suspicious of the stock market, but interest rates are at 300 year lows!!!

So is it time for a Plan B!? We think that for those of you in this suspicious camp with savings horizons of five years plus (Junior ISAs, pensions, ISAs earmarked for goals at least five years off…) – well, it could be time to take a deep breath and to stick a toe in the investment waters.

If you don’t understand markets and don’t want to understand them, that’s cool. Here’s how you can sort this quickly and painlessly without getting ripped off. Welcome to the investment ready-meal. A fund. Let someone else choose and blend the ingredients for you.

Homeowners
The cut may mean slightly lower mortgage rates, but in practice, they are so low anyway that it is not likely to make the marginal difference for the actual housing market. In practice, the housing market is much more likely to be influenced by consumer confidence (which is very weak), stamp duty rates (which are very high) and employment levels, which are reasonably stable for the time being (though there may be some nerves over job prospects in the wake of Brexit). The housing market is slowing and this is likely to continue.

Borrowers
If you’re in the market for a mortgage, do have a look at some of the fixed rate deals out there. Debt is cheap. It’s never been so cheap. So make sure any new mortgage OR your existing one is properly cheap!!!

Nevertheless, the usual rules apply. Loans still have to be paid back, and not all debt is created equal – credit card and overdraft debt is still very expensive, for example. You still need to check your rates and make sure you’re getting a good deal.

There is a valid question over whether all this tinkering by the Bank of England will work. Interest rates are already cheap, and may not significantly alter the behaviour of consumers or companies when we’re all scratching our heads over Brexit and wondering how the flipping hell this is all going to play out. Equally, it could be said to send a bad message. Are we supposed to believe everything is normal when these emergency measures are still in place? Time will tell...

(Source: www.boringmoney.co.uk

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