Online research from Equifax, the consumer and business insights expert, reveals that 39% of Brits expect Brexit to negatively affect how they access and manage their finances.
The survey, conducted by YouGov, also highlighted the younger generations’ pessimism about Brexit with over half (56%) of 18-24 year olds believing exiting the EU will make it more difficult to access and manage their finances, compared to 30% of those 55 and over.
Of the overall 39% who think Brexit will make managing and accessing their finances more difficult, 34% believe it will make securing a loan or mortgage more difficult and 15% think it will be more difficult to get a credit card. In contrast, of the 19% of Brits who expect Brexit to have a positive impact on their ability to manage and access their finances, 9% think it will be easier to secure a loan or mortgage, and 8% think it will be easier to get a credit card.
Almost a quarter of Brits currently employed (24%) believe Brexit will worsen their employment situation, with potential job losses, pay cuts or reduced hours; only 5% of people think it will improve their employment situation. Among self-employed respondents, 26% expect Brexit to negatively impact their business, versus 8% who are positive about their business position in a post-Brexit environment.
Jake Ranson, Banking and Financial Institution expert at Equifax Ltd, said, “These findings highlight the very real consumer concerns and confusion about the impact of leaving the EU on finances. With conflicting information circulating on the issues of job security and the level of economic fallout, people are feeling very anxious. Exiting the EU is an incredibly complex process and so it’s important that people take steps to manage their finances in anticipation of unpredictable changes ahead.
“New developments in the banking sector next year, particularly Open Banking, will help people navigate the uncertain environment with new tools to manage their finances and better assess the services available to them. The industry must work together to encourage consumers to engage with these initiatives so that the full benefits are properly understood and realised.”
(Source: Equifax)
According to reports, the ‘ridiculous’ bill the UK is to pay out in order to exit the UK, otherwise known as the Brexit bill, stands at around £44 billion. That’s a lot of money, and a lot of cash, but how much cash to be exact?
Finance Monthly has worked out approximately, based on the average size of a £50 bank note, the largest readily available note in the UK, how much space £44 billion in cash takes up? We don’t really have a photo of £44 billion in cash, so we’ll have to try and compare it to something just as big. Is it the size of a football field? The size of the Louvre? The size of the moon?
Well, a classic £50 measures at 156mm x 85mm x 0.113mm and weighs about 1.1g. That’s 1,498.38 mm3 per note. There are 20 million £50s in £1 billion. 20 million £50 notes take up 29,967,600,000 mm3, therefore 29.9676 m3. The Brexit cash is 44 times that figure. This brings us to 1,318.5744 m3, which rounded up is 1,318.6 m3.
Focusing on London, the capital of British finance, Big Ben is officially marked at around 4,650 m3 for its interior. Therefore realistically, the Brexit bill cash could fill up the inside of Big Ben just over a quarter of the way up! At this point it would likely also fill the floor in the House of Commons.
It’s a stack load of cash to hand over, 10 double decker buses’ worth in fact, in terms of volume that is, not value. A London Routemaster double decker bus is worth around £349,500, so 10 of those is £3,495,000 and well, Brexit is going to cost us a little more than that.
Of course, this is all speculation, and even the figure of £44 billion is an unconfirmed unofficial number. None the less, the prospect of paying the European Union such an amount means that as Brexit has all in all been a sizeable decision from the British public, there will be a sizeable price to pay.
The year 2017 has been eventful in terms of the various socio-political and economic developments across the world. Here is Mihir Kapadia’s quick summary of the year as it was.
The Year of Elections
After 2016 gave us Brexit and Trump, political and economic analysts across the developed world were wary about the possibility of protectionism spreading across the European continent, especially as 2017 was due series of elections in the region. With The Netherlands, France and Germany, the three big powerhouses of the European Union, going to the polls, there was a real threat of right-wing populist parties gaining prominence and altering the mainstream and liberal values of the western developed economies. The fear was legitimate, as EU sceptics appeared to be inspired by Brexit and Trump and were engaging on similar campaign promises based on nationalism and the closing of borders.
The year delivered relief across the continent, as liberal political parties emerged victorious over right-wing populists; however, the political dynamics and discourse in the region were considerably altered. Eurosceptics including Geert Wilders in The Netherlands, Marine Le Pen in France, and the Alternative for Germany (AfD) party gained mainstream prominence and considerable representation in their respective countries.
Germany is currently in a difficult spot, as none of the parties secured a working majority, Angela Merkel’s CDU has been attempting to negotiate a ‘grand coalition’, in an attempt to break the current political deadlock after coalition talks with the pro-business Free Democrats (FDP) and Greens collapsed. While brokering a grand coalition across parties in the parliament can deliver governance, it is too early to comment how strong the Chancellor’s leadership and authority would be.
Trumping the Stock Markets
While protectionism and populist policy proposals have been part of the 'Make America Great Again' campaign slogans, the larger driver behind the 'Trumponomics' rally has been the hope that President Trump can push through policies to stimulate growth and increase corporate profits. Anticipation of infrastructure expenditures, healthcare reforms and tax cutting legislation helped rally the stock markets to a series of all-time highs. While the stock market has consistently risen strongly since November 2016, despite the fact that many of Trump’s key promises such as infrastructure spending and healthcare reforms are yet to materialise, there are increasing fears that the US stocks are being overvalued. However, these concerns have been there since 2003 when the current long equity rally began.
Meanwhile, the dollar has had a rough year, having lost about 9-10% in 2017, but Trump has probably been happy to see it fall, as it will help boost US exports.
Financial analysts observing the uptrend in the US stock market over the year have cautioned that the markets may already be overpriced. The last time the US economy had a meltdown, it was 2008 and it affected the whole world. The 2008 financial crash occurred because of fragility in the banking system due to poor mortgage lending. The US is currently trending positively on earnings, employment, wage growth, housing and GDP. These indicate no signs of an impending recession; and the Federal Reserve is likely to raise interest rates through 2017 and into 2018. Trump has been indirectly very good for the economy.
Dull year for Gold
The significant threat globally throughout 2017 has been North Korea's aggressive stance against the US and its regional allies - South Korea and Japan. The year-long nuclear ballistic tests and provocative missile launches rattled Asian markets, but net impact was negligible and equities have risen in Asia and elsewhere. Therefore, safe-haven assets, such as Gold, received little support due to these threats.
Globally, the bullish stock market, rising interest rates and a sense of market security proved to be bad news for Gold, US-denominated assets such as Gold are influenced by the movements of the dollar, and its fortunes are also tied to the dollar among other factors. The US dollar has fallen nearly 10% year-to-date (or YTD) in 2017.
Under a bullish Federal Reserve, the commodity had already priced in the factor of interest rate hikes. Only if the actual rate of increase is lesser than expected, gold prices may benefit and see some relief going into 2018. Investors therefore will keenly observe the Fed’s tone when they discuss the interest rates for next year to understand how they would progress into 2018.
Brexit uncertainty remains
Brexit continues to dominate the UK’s political and economic spheres and the year began with the invoking of Article 50 by Prime Minister Theresa May on 29th March 2017. Political discussion around Brexit also led the country into a snap general election in June, resulting in the Conservative Party losing their majority, and further splitting the British parliament.
Since the Brexit referendum of 2016, the pound lost 10% against the Euro and 17% against the Dollar. The fall in the value of the pound in fact worked in favour for the stock markets, with the FTSE100 (which largely comprises of exporting organisations) having reached record highs through the year. While the fall in the value of the currency may have helped British exports, the benefit stops there. Rising inflation and weak wage growth in the UK have directly affected the average British household as the period of uncertainty continues.
While Brexit is inevitable, the financial sector, which considers London to be its capital, is keen on retaining its ‘passporting rights’ - the right for a firm registered in the European Economic Area (EEA) to do business in any other EEA state without needing further authorization in each country. In fact, London has been the major focal point for this very reason – an English language capital city, ideally located between the Americas and Asia and acting as the gateway into Europe. Therefore, any indication of a ‘Hard Brexit’ – one which threatens to pull the UK out of the EU without any deal, is of a major concern for the City of London. The pound and the economy therefore are directly affected over this concern as businesses continue to operate over the period of uncertainty. The UK also faces an upward of £40 Billion Brexit ‘divorce bill’ payable to the EU, which adds another financial liability to the process.
Eurozone recovery at its finest
The European Central Bank’s (ECB) president Mario Draghi has expressed the bank’s confidence over the region’s recovery, noting that the momentum has been robust, as GDP has risen for 18 straight quarters. The central bank attributed the overall success this year to improved employment figures in the single bloc, while noting that inflation cannot be self-sustained at this juncture. Mr Draghi used these comments to express interest and possibility for extending the timeline of the slowdown of its bond-buying program, which is slated to start from January 2018.
While the recovery has been robust, the ECB also recognises that it is vital for member states to continue a stable political and economic structure within, and reinforce each of their fiscal structures in order by focusing on both, keeping a buffer rainy-day fund while also working towards reducing debt. While these are words of wisdom for the future, Mr Draghi would also be thankful for the past year as Eurozone mitigated the rise of far right into leadership, especially in France, Netherlands and Germany – the three key powerhouses in the EU. The economy therefore was well protected this year.
10 Years of the Financial Crash
2017 also marked the 10 years of the great financial crisis of 2008 in October, which had sent the risk assets across global stock markets and economies tumbling. The ten years since the financial crisis of 2007-08 has passed quickly and on a better note than anyone could have expected at that point of time. From the collapse of Lehman brothers in 2008 to the arrests of Irish bankers in 2016, the 2008 depression had brought in a wider understanding of the fragile western economic ecosystems. The crash was a serious wake-up call for governments across the world, thus paving way for bringing in regulatory responses to the banking practices - such as the expansion of government regulation, scrutinised lending practices, and tougher stress tests to make sure they can withstand severe downturns.
The financial crash of 2008 provided a learning opportunity to set things right, and our economic mechanisms today have certainly implemented checks and balances to be more cautious in their functionality. If the crash has taught us anything, it is that complacency can be catastrophic.
It has certainly been an interesting year, and 2018 holds more opportunities for us than ever before to learn and grow.
The swell of rumours, conjecture, and concerns surrounding Britain’s exit from the EU has, in the eight months since Article 50 was triggered, ebbed somewhat. Though many questions still remain on the pending negotiations, financial companies in London have known since last year that Brexit will change their ability to do business in the EU. As a result, hubs within the EU like Ireland, Germany, and Luxembourg have been vying for the attention of these firms—and now, one year after the Brexit vote, companies have begun making decisions.
From the beginning, Ireland has been a contender, sharing a language with the UK and many of its legal aspects, as well as having an attractive fund framework. However, Luxembourg has been mentioned in the same breath—notably by Standard Life CEO Keith Skeoch, who, CNBC reported, specified these two countries as top options for asset managers. By the latest count, there are 11 companies moving house to Ireland, 10 to Germany, and 4 to the Netherlands.
And 24 to Luxembourg.
There are perhaps many reasons for this. Ireland does speak Britain’s language, but that language happens to be the international tongue of business—and is thus, the core language spoken in Luxembourg’s finance industry, whose widespread proficiency in German and French adds extra accessibility to those markets. And while Dublin’s fund toolbox is attractive, Luxembourg’s is at least as alluring—and its Government has made it clear that this will not change. Just last year they introduced a new vehicle, the Reserved Alternative Investment Fund (RAIF), to meet customer demand for less supervision and a faster time-to-market. Again, to support these comments with numbers: Luxembourg is the second largest fund hub in the world, second only to the United States, a country whose population is 500 times bigger.
Luxembourg has also taken its own approach to attracting firms from London. Due to its size, the Grand Duchy must consider quality over quantity. In fact, having large insurance companies, fund houses, and banks putting their entire headquarters in Luxembourg’s capital city—population 100,000—wouldn’t be sustainable. So, instead, led by Finance Minister Pierre Gramegna, the country has asserted itself as a partner to London, rather than a replacement. Why not move a core part of your workforce to Luxembourg, argues Mr Gramegna, rather than the entire cohort? This may have played well with Britain-domiciled companies, whose employees probably don’t relish leaving their UK homes.
A key issue to moving part of a company is, of course, substance. Companies should know that there is a wealth of guidance out there on this topic, substance being central to this post-crisis zeitgeist.
And since we are discussing the merits of Luxembourg as a finance hub, some of the main talking points—industry veterans will be well-acquainted with them already—must be mentioned: Luxembourg has a AAA stability rating; its sovereign debt is 22.1% of its GDP and saw growth in 2016 by 3.7%; it has a highly-skilled and multilingual workforce; it is a leading European financial centre (both for cross-border fund distribution and cross-border insurance and reinsurance activities); and finally it has a predictable and competitive legal, tax, and regulatory framework.
To top it all off, you can get Bus 16 from the airport to the business district of Kirchberg in about 7 minutes. Dublin Airport to the city centre is, so I hear, up to an hour in traffic.
Website: https://home.kpmg.com/lu/en/home.html
With plenty of change coming in 2018, here Emmanuel Lumineau and Thomas Schneider, Founders of BrickVest, delve deep into the future of real estate for the coming year, prospects of growth and challenges ahead.
2017 was a strong year for the real estate industry. Despite a number of external factors that could have easily affected market performance, low interest rates remained stable and demand in real estate investment products continued to rise.
Brexit
Brexit has clearly had an effect on the UK but we believe that across Europe, there remains strong deal flow levels and investment opportunities. Our recent research1 showed that one in three (33%) commercial real estate investors highlighted Germany as their preferred region to invest in. This is the first time that Germany has been chosen as the number one region to invest in and ahead of the UK which was selected by a quarter (27%).
The UK saw a drop from 31% in the last quarter and from 32% in the same Barometer 12 months ago. The Barometer also revealed that UK, French, German and US investors are now less favourable towards the UK since last year. 45% of UK, nearly a quarter (21%) of US, a fifth (19%) of French and 18% of German investors suggested they favour the UK this quarter, representing a decrease from last year across the board from 46%, 26%, 28% and 21% respectively.
Despite investors seemingly focussing away from the UK, there has been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.
Moreover the average risk appetite of BrickVest’s investors continues to rise to 52% from 49% last quarter and from 48% this time last year, meaning a sentiment shift from low to balanced risk
Interest rates
The Bank of England’s decision to raise interest rates in the UK in November was momentous for the economy and should signal the start of a series of gradual increases. The Bank decided that inflation is potentially getting out of control and the economy now requires higher borrowing costs. In contrast, the ECB’s decision to unwind its QE programme to €30 billion a month is a glowing endorsement of healthy Eurozone growth and falling unemployment, which will more than likely mean that interest rates will stay at historic lows until at least 2019 in order to help financial markets adjust.
Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. In a low interest rate environment, European real estate yields will continue to look attractive and real estate serves as a good alternative to fixed income.
Value in 2018
We expect to see increasing demand for real estate in 2018. Indeed our research2 showed that two in five (40%) institutional investors plan to increase their allocation to European commercial real estate while 44% expect commercial property yields to increase in the next 12 months, just 22% believe they will decrease.
We believe that the best value can be found in real estate deals that are not too sensitive to price erosions. Investors should keep a close eye on the risk of high leverage and DSC ratios. We believe that the best investment options for 2018 will most likely be found in value-add real estate in combination with a conservative financing policy.
Investment strategy 2018
Given the fact that we believe demand will remain relatively high in 2018, one of the main challenges will be to find good deals.
Investors will have to find the right balance of higher leverage (due to continually low interest rates) and being able to handle potential price corrections in the event that the market cools off due to external factors such as Hard Brexit, escalation in the US vs. North Korea conflict, etc…
Institutional investors are investing in less liquid secondary and third level cities to achieve acceptable going-in cap rates (cap rates in major markets such as Paris are historically low). Investors will also be forced to look at less traditional investment products such as student housing, services apartments, and senior housing or industrial to get better returns. The overall risk of these investment is that they are in general less liquid and if the market bounces back, cap rates will also increase much faster than in downtown Paris.
In order to manage this problem, some institutional investors are now investing in real estate debt products so that they a.) have their exposure to real estate but b.) also have an achievable exit (i.e. when the loan maturity is reached). We think this might be smart strategy in 2018 given real estate prices are already very high and might fall in the long term (so no upside opportunity but also no real downside risk).
Sectors to watch
We continue to see the highest level of volatility from the office sector as many international firms put decisions on hold over their long-term office space requirements. Our research2 with institutional investors highlighted that more than a third (34%) believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.
Three in ten (31%) thought the industrial sector would present the biggest commercial real estate investment opportunities over the next 12 months while one in five (19%) cited the retail & leisure sector.
Mifid II
When implemented in January 2018, revisions to the EU’s Markets in Financial Instruments Directive (MiFID II) will radically change the regulation of EU securities and derivatives markets, and will significantly impact the investment management industry. It will have a significant impact for wealth and asset managers on profitability, product offer and their distribution across Europe, operating models and pricing and costs.
As a consequence, we expect MIFID II to widen the gap between global, infrastructure-based players, and local players. Crowdfunding platform may be affected by these changes.
General Data Protection Regulation (GDPR)
GDPR comes into force on 25 May 2018 and represents the biggest change in 25 years to how businesses process personal information. The directive replaces existing data protection laws and will significantly tighten data protection compliance regulation.
Like other industries, real estate companies will have to conduct a risk analysis of all processes relevant to data protection.
Yesterday saw Chancellor Phillip Hammond deliver his second budget. While the abolition of Stamp Duty, several tax revisions, freezes on several duties, increased investment in AI and Technology and a £3 billion investment into the NHS all came as welcome additions they could not prevent a sharp drop in the UK Growth Forecast following the budget.
So with many experts labelling it a ‘make or break’ moment for Hammond and a somewhat beleaguered Government, we spoke to the industry experts to see what the Autumn budget really means for the Financial Sector in a special extended Your Thoughts: Autumn Budget 2017
Choose your sector below or scroll through to read all the insight.
FinTech & Digital
UK Growth, Investment & Forex
Tax
Healthcare & Retail
Property & Real Estate
FinTech & Digital
Abe Smith, CEO and Founder at Dealflo
London has been a world-leading financial centre since the 19th century, but low growth forecasts and the lack of clarity around Brexit are unsettling for businesses. The Chancellor has had to work hard to ensure that the UK remains an attractive place to invest and innovate post-Brexit. The new National Investment Fund means that even after Brexit, the UK will remain a hub for FinTech innovation and will attract fast-growing tech companies.
Niels Turfboer, Managing Director of UK & Benelux, Spotcap:
The FinTech industry is going from strength to strength and the UK Government can play an important part in enabling FinTechs to continue to thrive.
We therefore welcome Philip Hammond’s promise to invest over £500m in numerous technology initiatives, including artificial intelligence and regulatory innovation, as well as unlock over £20bn of new investment in UK scale-up businesses.
With this assurance, the government has shown a strong commitment to the FinTech sector, which will hopefully help tech companies all around the UK to flourish and grow.
World Economic Forum member Jane Zavalishina, CEO of Yandex Data Factory
The reality is that it is not the scientific development of AI that will be game-changing in the next few years, but instead the more prosaic, practical application of AI across many different sectors.
While AI is too often associated with self-driving cars and robots, the truth is the most significant AI applications that are of most significance to businesses, are actually the least visually exciting. AI that improves decision-making, optimises existing processes and delivers more accurate demand prediction will boost productivity far more powerfully than in all sectors.
But it’s not just productivity that will be significantly impacted – business revenue will also benefit. The beauty of AI lies in its ability to be applied with no capital investments – making it an affordable innovation for businesses to adopt. Unlike what is commonly thought, applying AI does not require infrastructure changes – in many processes cases we already have automated process control, so adding AI on top would require no investment at all. Instead, companies will see ROI within just a few months.
Martin Port, Founder and CEO BigChange:
We welcome this announcement and support for tech businesses from the Chancellor. Financial backing and stability is a huge hurdle facing all start-ups, so I am pleased to see the government pledge more than £20 billion of new investment. I just hope this funding is easy to access and readily available for those who need it, rather than being hidden among reams of red tape.
Leon Deakin, Partner in the technology team at Coffin Mew:
As a firm with a growing technology sector and client base in this area we are obviously delighted to see specific investment in the technology sector, particularly in AI and driverless vehicles.
Doom mongers have long been predicting that the UK and its tech hubs will be hit hard by Brexit and there have been numerous reports of rival cities within the EU which have sought to position themselves as alternative options. However, we are yet to see this materialise and incentives and commitments such as those announced by the Chancellor in these innovative but essential areas have to be great news for the economy, the sector and those who advise businesses in it.
Of course, creating the next unicorn is no easy task but a serious level of investment of the magnitude announced should at least ensure those businesses with promise have the best chance to scale up even if they don’t reach the $1billion level. Likewise, there is little point developing these new technologies if the infrastructure and support is then not there to utilise them properly
Matthew Adam, Chief Executive Officer of We Are Digital:
With the UK economy now expected to grow by 1.5% in 2017, a downgrade from the 2% forecast made in March, coupled with the challenges of Brexit, the need for the UK to sit at the forefront of digital skills and inclusion is more pressing than ever. We need to be able to grasp, with both hands, the digital opportunities that present themselves to us in order to make us a true global digital force.
The reality is that we simply cannot afford not to. Independent analysis shows that getting the UK online and understanding how to use digital tools could add between £63 billion - £92 billion to UK Plc’s annual GDP. Indeed, it is my belief that economies which focus strongly on getting its citizens online are also more productive.
The Chancellor has said that a new high-tech business is founded in the UK every hour, which he wants to increase to every half hour. It is imperative we support this growth through the announced £500m investment in artificial intelligence, to 5G and full-fibre broadband. However, to bridge the need for the 1.2 million new technical and digitally skilled people which are required by 2022, we must create and support retraining opportunities across society to make the UK truly digital.
Technology improvements are causing widespread changes in every market and the public sector should be no exception, especially as it often faces the biggest social problems to solve. I’m glad the government is waking up to the fact that the latest technological advances don’t need to be assigned only to the private sector, but can do a lot of good to the community at large. We know from our direct work with the Home Office that every government and council department is moving its processes online. Whether it’s chatbots to automate processes, or solving how people engage with Universal Credit, there is so much we can do here with ‘Gov -tech’
I therefore welcome the Chancellor’s digital announcements today and consider this budget as not so much a leap in the right digital direction, but more a necessary conservative step.
UK Growth, Forex & Investment
Owain Walters, CEO of Frontierpay:
The Chancellor’s efforts to win younger voters from Labour by abolishing stamp relief for first-time buyers on homes up to £300,000, and on the first £300,000 of properties up to £500,000, come as no surprise. The potential for such an announcement has been a hot media topic in recent weeks and as such, we don’t expect to see any significant impact on the value of the pound.
“In the wake of this Budget, any real movement from the pound will be caused either by developments in the Brexit negotiations or the potential for a further interest rate rise. I would therefore advise any businesses that want to stay on top of turbulence in the currency markets to keep a close eye on inflation data.
Markus Kuger, Senior Economist, Dun & Bradstreet
It’s not surprising that the Chancellor opened this year’s statement with a focus on Brexit; even as businesses absorb the implications of the Budget, they have a close eye to the ongoing negotiations and any likely trade agreement, which is likely to profoundly impact their future. The government’s move to provide a £3bn fund in the event of a no-deal outcome is designed to increase business confidence. In the meantime the business environment remains challenging, and Dun & Bradstreet forecasts that real GDP growth in 2018 will slow to 1.3% (from 1.8% in 2016). Businesses should continue to follow the Brexit negotiations closely and consider that operating conditions could change dramatically over the next 18 months as the Brexit settlement is clarified.”
Damian Kimmelman, CEO of Duedil
We welcome the government’s announcement that the Enterprise Investment Schemes’ (EIS) investment limit, for knowledge intensive scale-ups has been doubled.
The EIS has been great for attracting investment for small businesses, however we need to ensure investment through the scheme is not being used for capital preservation purposes, but instead to encourage the growth of companies.
The key to increasing investment in ‘higher risk’ growth companies through the EIS scheme, is to eliminate information friction. With more data, investors can price risk effectively, so they can lend to support the small businesses forming the backbone of the economy, driving growth, and creating jobs.
Lee Wild, Head of Equity Strategy at Interactive Investor:
This budget was always going to be especially tricky for the chancellor. Hitting fiscal targets amid wide divisions over Brexit, while also spending more on populist policies to distract voters from Conservative party infighting and dysfunctional cabinet, was a big ask. Hammond wasn’t fibbing when he promised a balanced budget. Once tax giveaways, downgrades to growth forecasts, billions more for the NHS and the rest are put through the mincer, both the FTSE 100 and sterling are unchanged.
Given Britain’s housing crisis was an obvious target for the chancellor, he really needed something substantial to make his aim of 300,000 new homes built every year anything more than a pipe dream. Committing to at least £44 billion of capital funding, loans and guarantees to support the housing market will go a long way to achieving the chancellor’s ambitious target. Abolishing stamp duty for first-time buyer purchases up to £300,000 is a tiny saving, however, and buyers, especially in London, will still require a huge deposit to get a foot on the housing ladder.
The market hung on Hammond’s every word, causing a comical yo-yo effect as the chancellor slowly revealed his strategy. A threat to use compulsory purchase powers where builders are believed to be holding land for commercial reasons, could cause sleepless nights.
Overall, Hammond’s ideas are sound, but probably not enough of a catalyst to get sector share prices rising significantly near-term, given mixed results in the run-up to this budget.
Mihir Kapadia – CEO and Founder of Sun Global Investments:
The Autumn budget statement from Chancellor Phillip Hammond was as expected, with a few pleasant surprises. While Mr Hammond set out his policy proposals with a "vision for post-Brexit Britain", he also acknowledged that his Budget was "about much more than Brexit". With the Conservatives struggling in the polls, the Chancellor was under pressure to regain support for his party, which is currently in a fragile coalition.
The expected announcements include the decision to abolish stamp duty for first time buyers on properties up to £300,000, addressing the housing crisis, an immediate injection of £3.75 billion into the NHS, investments into infrastructure (transport and network), freezing duty on fuel, alcohol and air travel, and finally a Brexit contingency budget of £3 billion.
While today’s budget was populist and aimed at the electorate, it has to be noted that the Office for Budget Responsibility (OBR) sharply downgraded both Britain's productivity and growth forecasts, as well as its business investment forecasts, meaning the UK's finances look set to worsen over the coming years. This does not factor the possibility of a Brexit-related downturn or a wider global recession, which has already been seen as overdue by many forecasters.
We expect the abolition of stamp duty for first time buyers on properties up to £300,000 will draw extra attention and headlines from much of today’s announcements. It is vital that we acknowledge the warnings from the Office for Budget Responsibility.
Angus Dent, CEO, ArchOver:
The UK’s productivity growth continues to decrease and we’re looking in the wrong place for answers. It’s not just a case of everyone working a bit harder. Investment in public infrastructure and fiscal policy will be the defining factors that help the UK catch up, while real growth will come from our SME sector.
Britain is known as a nation of entrepreneurs. Yet we’re in real danger of not giving our SMEs the support they need to thrive. We need a bottom-up approach where small businesses with bright ideas have access to the finance and advice they need to grow. Only then will we have the firm economic foundation we need to build our productivity post-Brexit.
The expansion of the National Investment Fund in today’s Budget is a good start, but too many SMEs still have to pay their way with personal savings or put their houses on the line as security if they turn to the big banks for help.
We need to inspire a new culture. We know there is an army of willing investors out there who want to support British business - lending across P2P platforms is on course to rise by 20 per cent by the end of this year according to data from 4thWay.
However, we need to raise awareness among SMEs of the different options available to help them finance their growth. SMEs need to take control of their own destiny. With the right finance in place, they can drive the whole country forward to new heights of productivity. We can’t just leave it to government – small businesses must be given the power and the cash to fulfil their potential.
Tax
Paul Falvey, tax partner at BDO:
It’s clear that the headline grabbing news revolved around the Chancellor’s decision to abolish stamp duty for first time buyers on properties purchased up to 300,000, at a cost of £600m a year to the tax man. Whilst this is important for people getting on the property ladder, there were other key assertions.
Firstly, HMRC will start to charge more tax on royalties relating to UK sales when those royalties are paid to a low tax jurisdiction. Although this is only set to raise approximately £200m a year, it sets a precedent that tax avoidance will continue to be on the governments agenda. Implementing the OECD policies is a tactic we expected.
Furthermore, companies will pay additional tax on the increase in value of their capital assets from January 2018. The expected abolition of indexation allowance will mean that, despite falling tax rates, companies will be taxed on higher profits. By 2022/2023 this is expected to raise over £525m.
62% of the businesses we polled before the Budget said they will be willing to pay more taxes in return for a simpler system. Yet, once again, the government has done nothing to tackle the issue of tax complexity. It is a huge obstacle to growth and businesses will be disappointed that there was no commitment to setting out a coherent tax strategy.
Craig Harman is a Tax Specialist at Perrys Chartered Accountants:
Although it was widely anticipated beforehand, the only real rabbit out of the hat moment for the Chancellor was confirming the abolishment of stamp duty for first time buyers. This equates to quite a generous tax incentive for those able to benefit resulting in a £5,000 saving on a £300,000 property purchase.
The Chancellor has also stood by his previous promises, by raising the personal allowance to £11,850, and the higher rate threshold to £43,650. This is in line with the commitment to raise them to £12,500 and £50,000 respectively by the end of parliament.
Small business owners will be pleased to note that speculation regarding a decrease in the VAT registration threshold did not come to fruition. It was anticipated the Chancellor would look to bring the UK in line with other EU countries, however this will be consulted on instead and may result in changes over the next couple of years. Any decrease in the threshold could place a significant tax and compliance burden on the smallest businesses.
Ed Molyneux, CEO and co-founder of FreeAgent
I don’t believe that this is a particularly positive Budget for the micro-business sector. Rather than actually offering real support or meaningful legislation to people running their own businesses in Britain, the Chancellor has simply kept the status quo.
While it’s pleasing to see that the VAT threshold has not been lowered - which would have added a significant new administrative burden to millions of UK business owners - this is hardly cause for celebration. Neither is the exemption of ‘white van men’ from diesel charges, which is the very least that the Government could have done to protect the country’s army of self-employed tradespeople.
It’s also disappointing that there are still a number of issues including digital tax that have not been expanded in this Budget. I would have preferred to see the Chancellor provide clarity on those issues, as well as introducing new legislation to curb the culture of late payment that is plaguing the micro-business sector and further simplifying National Insurance, VAT and other business taxes.
Rob Marchant, Partner, Crowe Clark Whitehill
The Chancellor announced that the VAT registration threshold will not be changed for the next two years while a review is carried out of the implications of changing this (either up or down).
Having a high threshold is often regarded as creating a ‘cliff edge’ for businesses that grow to the point of crossing that line. However, keeping a significant number of small businesses away from the obligations of being VAT registered allows them to focus on running their operations without additional worry. Many small businesses will welcome the retention of the threshold.
The consultation should look at ways to help smooth the effect of the “cliff edge”, while continuing to reduce administrative obligations for small businesses.
Jane Mackay, Head of Tax, Crowe Clark Whitehill
The tax avoidance debate has centred around large multinationals and their corporate tax bills. High profile cases have eroded public trust in how we tax companies. By maintaining the UK’s low corporate tax rate, currently 19%, and reducing it to 17% from 2020, the Chancellor accepts that corporate tax is only of limited relevance in our UK economy. It accounted for around just 7% of UK tax revenues last year.
The Budget announces changes to extend the scope of UK withholding taxes to tax royalty payments in connection with UK sales, even if there is no UK taxable presence. There will be computational and reporting challenges, but this measure may pacify those who feel the UK is not getting enough tax from international digital corporates which generate substantial sales revenues from the UK
Healthcare & Retail
Hitesh Dodhi,Superintendent Pharmacist at PharmacyOutlet.co.uk
With a focus on Brexit, housing and investment into digital infrastructure, it was disappointing to see a many healthcare issues overlooked in today’s Budget. The additional £2.8 billion of funding for the NHS in 2018-19 is a undoubtedly a step in the right direction, but it falls short of the extra £4 billion NHS chief executive Simon Stevens says the organisation requires.
What’s more, the Budget lacked substance and specifics; it did little to progress digitalisation in the healthcare sector – an absolute must – while the opportunity to promote pharmacy to play a greater role in delivering front-line services to alleviate the burden on GPs and hospitals was also overlooked. These are both items that should feature prominently on the Government’s health agenda, but the Chancellor did little to address either in today’s announcement.
Jeremy Cooper, Head of Retail Crowe Clark Whitehill:
There is little in this Budget to bring cheer to the struggling retail sector.
The changes to bring future increases in business rates into line with the Consumer Price Index in 2018, two years earlier than previously proposed, is welcome, but is it enough for hard-stretched shop owners?
The National Living Wage will increase for workers of all ages, including apprentices, which is excellent news for lower paid employees. Retailers would not begrudge them this increase, but retail tends to have a higher proportion of lower paid employees and the impact on store profitability and hurdle rates for new stores should not be underestimated.
There is more positive news for DIY, home furnishings and related retailers in the form of the abolition of Stamp Duty Land Tax (SDLT) for first time house buyers. This should help stimulate the first time buyer market and free up the wider housing market which in turn should boost retail sales for DIY and home furnishings retailers from buyers decorating and furnishing their new homes.
Property & Real Estate
Paresh Raja, CEO of bridging specialist MFS
After an underwhelming Spring Budget that completely overlooked the property market, this time around the Chancellor has at least announced some reforms that will benefit homebuyers. While stamp duty has been cut for first-time homebuyers, the amount of money this will save prospective buyers is in reality still limited – the average first-time buyer spends £200,000 on a property; abolishing stamp duty for them will save them just £1,500.
Importantly, homeowners looking to upgrade to another property still face the heavy financial burden of stamp duty, which will ultimately deter them from moving house. I fear this will have significant implications in the longer term, decreasing the number of people moving from their first property purchase, and thereby reducing the number of properties available for first-time homebuyers, and reducing movement in the market as a whole.
Fareed Nabir, CEO and founder of LetBritain
“Having acknowledged the growing number of Brits stuck in rental accommodation, it’s pleasing to see the Government deliver a Budget heavily geared towards the lettings market. With 7.2 million households likely to be in the rental market by 2025, the Chancellor has seized the opportunity to continue with the recent wave of reforms by offering tax incentives for landlords guaranteeing tenancies of at least 12 months. This should hopefully have a trickle-down effect on rental prices, offering more financial manoeuvrability for tenants saving to buy their own house – something the Chancellor has made easier – while also providing additional security for renters.”
Richard Godmon, tax partner at Menzies LLP
We should to see house price increases almost immediately on the back of this announcement. His commitment to building an extra 300,000 homes a year is not going to happen until 2020s, so this measure could lead to market overheating in the meantime.
The removal of indexation allowance will come as a further blow to buy-to-let landlords, many of whom have been transferring their portfolios into companies since interest the restriction rules were introduced. This will mean paying more tax on the future sale of properties.
Now that all sales of UK investment property by non-residents after April 2019 will be subject to UK tax, it effectively means one of the incentives to invest in UK property by non-residents has been removed.
Jason Harris-Cohen, founder of Open Property Group
There was a lot of speculation before the Budget that the Chancellor would reduce or temporarily suspend stamp duty for first-time buyers, in a bid to help young people get on the property ladder. What we got was the complete abolishment of the tax on first-time house purchases of up to £300,000, effective from today, and in London and other expensive areas, the first £300,000 of the cost of a £500,000 purchase by first-time buyers will be exempt from stamp duty. This is arguably the biggest talking point of today’s announcement and as the Chancellor says will go a long was to "reviving the dream of home ownership".
It was equally refreshing to hear that the Government is committed to increasing the housing supply by boosting construction skills and they envisage building 300,000 net additional homes a year on average by the mid-2020s. However, I was surprised that local authorities will be able to charge 100% premium on council tax on empty properties, though I appreciate that this is a further stimulus to free up properties sitting empty and bring them back to the open market to increase supply. Conversely this could result in falling house prices if there is further supply and lower demand following a period of political and economic uncertainty.
What was disappointing, however, was the absence of any mention to reverse the stamp duty change that were introduced in 2016 for buy-to-let and second homes, which is currently deterring people from investing in the private rented sector. The longer it is around the more of a knock on effect it will have on the growing homelessness crisis, a problem the Government plans to eliminate by 2027 - a bold statement from Mr Hammond!
We’d love to hear more of Your Thoughts on Phillip Hammond’s Autumn Budget. Will it benefit Britain and will the reduced growth forecasts have an impact? Let us know by commenting below.
British farmers are being hit by a shortage of migrant workers and are warning a dysfunctional Brexit will have a devastating impact on their industry. They are calling on the government to provide direction and answers on the future of British farming after the UK leaves the European Union. Bloomberg’s Angus Bennett travelled to Kent, in Southern England, to meet the farmers and migrant workers on the front lines of Brexit.
Video by Angus Bennett and Gloria Kurnik
With recent news that the pound took a tumble over the weekend, partly attributed to the future of Theresa May as Prime Minister and the upcoming EU summit, rumours that China is looking to open its finance sector up to more foreign ownership, and updates on the latest trade announcement being teased by US President Trump after he pretty much told Japan they ‘will be the no.2 economy’ here are some comments from expert sources on trade worldwide.
Rebecca O’Keefe, Head of Investing at interactive investor, told Finance Monthly: “European markets have opened relatively flat, with the FTSE 100 the main beneficiary after sterling’s latest fall, as pressure mounts on Theresa May who is struggling to maintain her grip on power. The gravity defying US market has been the driving force behind surging global markets, so investors will be hoping that the Republicans can get their act together and deliver key US tax reform to help support the path of growth.
In sharp contrast to Persimmon’s lacklustre results and a gloomy report from the RICS last week, Taylor Wimpey’s trading update is much stronger and paints a relatively rosy picture of the current housing market. Confirmation of favourable market conditions and high demand for new houses is good, although there are early warning signs that the situation might deteriorate, with slowing sales rates and a drop in its order book. Share prices have already come off recent highs, amid fears that the sector had got ahead of itself and investors will be hoping for more help from the Chancellor in next week’s budget to try and provide a new catalyst for the sector.
Gambling companies have been making out like one armed bandits since the summer, as expectations grow that the Government will compromise on a much higher figure for fixed odds betting terminals than the £2 maximum suggested during this year’s election campaign. However, while betting shops are the focus of attention for politicians, the real action can be found on smartphones and elsewhere – with surging revenues and profits being driven from online betting. Companies who have got their online strategy right are the significant winners and although Ladbrokes Coral has seen a 12% jump in digital revenues, the comparison against online competitors such as bet365 and Sky Bet, who both reported huge revenue growth last week, has left the market slightly disappointed and sent the share price lower.”
Mihir Kapadia, CEO and Founder of Sun Global Investments, had this to say: “The last couple of days have seen two of the big global economies China and Germany report large trade surpluses underlining their robust performance over the year. In contrast, the UK economy has been on a downbeat weakening trend as Brexit and political uncertainties lead to declining economic confidence and slower growth.
Data released last month showed August’s trade deficit at £5.6 billion, and in comparison, today’s data of £3.45 billion for September has been a better than expected improvement, but nevertheless indicative of an additive gap that appears unlikely to be closed anytime soon.
While Brexit uncertainty has weakened the pound against its major peers, it had helped boost exports but in turn has also made imports more expensive. This is the short term “J Curve” effect which is often seen after a devaluation. Over the long term, the weaker pound is perhaps likely to help the trade deficit as exports rise (due to the lower pound and higher growth in the global economy) while import growth slows down due to the slowdown in the UK.”
Failure to start Brexit trade talks at the EU summit in December could lead to “a difficult choice between two opposite policy stances from the Bank of England”, warns the senior investment analyst at one of the world’s leading independent financial services organisations.
deVere Group’s International Investment Strategist, Tom Elliott, is speaking out after the Bank of England (BoE) raised interest rates last week for the first time since 2007, and as senior officials in Brussels say the EU is unlikely to agree to trade talks in December unless the UK offers more concessions.
Mr Elliott comments: “The uncertainty over the UK’s eventual trading relationship with the EU is blamed by some for the weaker economic growth seen since the spring. Investment spending is being deferred or abandoned, with the long term impact being weaker productivity gains and wage growth than would otherwise occur. Sterling may fall victim to this uncertainty, and become a ‘big short’ on foreign exchange markets in December if an EU heads of government summit decides that no progress has been made on the divorce bill.
“They can then refuse permission for the EU negotiators to move on to discuss the post-Brexit trading arrangements, and a possible transition agreement. The UK government needs to show progress on this area, soon, in order to assure British business that an eventual deal will be had.. The longer talks on the future trading relationship are postponed, the greater the risk of no deal being in place by March 2019 when the UK leaves the EU, and the greater the disruption to the U.K economy.”
He continues: “This will put the Bank of England in a difficult spot - should it cut the bank rate to support the economy but risk a further fall in sterling, or raise interest rates further to support the pound? Keeping the currency attractive is important when the UK Treasury has to sell billions of pounds worth of gilts each year in order to support a 3.6 per cent annual budget deficit.
“The BoE will be under intense pressure to ‘support Brexit’ from influential Eurosceptic politicians, who have openly called for the Governor, Mark Carney to be sacked on grounds of his warnings over Brexit, both before and since the referendum.
“This means keeping rates low to help support the economy through the Brexit shock. Politics therefore favours letting the pound take the strain, even though gilt yields may have to rise to attract foreign buyers, increasing the funding costs of the government deficit.
“The Treasury is increasingly seeing Brexit as an exercise in damage control, but has limited fiscal tools at its disposal to support demand should Brexit go badly. There is no money for tax cuts or spending increases. This adds pressure onto the Bank of England to go easy on interest rate hikes.”
Mr Elliott concludes: “The Bank of England has presumably balanced the risks of a rate hike with the overall aim of normalising monetary policy and curbing credit growth, and has concluded that a slight dampening of demand now -while the economy is at least still growing- is better than leaving rates at record low levels that encourage over-borrowing by consumers.
“Brexit complicates setting monetary policy. And the BoE will be pulled in two different directions should the EU summit in December fail to make progress on the Brexit divorce settlement.”
(Source: deVere group)
As expected, Mark Carney and the Bank of England have risen the UK interest rate for the first time in 10 years, stating that: “The time has come to ease our foot off the accelerator”.
The rate has risen from 0.25% to 0.5%, returning it to the same levels it was prior to a drop following the Brexit referendum result in June 2016, a move designed to stabilise the economy during a tumultuous market in the wake of the landmark vote. The MPC (Monetary Policy Committee) voted by a score of 7-2 in favour of an increase, but has sought to curb any major fears of a quick rise and retain a level of cautiousness by stating in its report that, “All members agree that any future increases in Bank Rate will be at a gradual pace and to a limited extent”.
The rate rise has been expected to happen for some time and is seen by many as a direct response to protect British households from creeping inflation. Mark Carney, Governor of the Bank of England, is tasked with keeping inflation at a target mark of 2%, however September saw it rise to 3%, its highest figure since 2012.
The rate increase was also announced in tandem with an upgrade on the growth forecast for this year, which has been raised from 1.3% to 1.5%. The projections for 2018 have also been upgraded, and while this may sound promising for those who championed leaving the EU, the Bank of England has been very clear in asserting its position that Brexit is, and will remain, harmful to the UK economy. The report states that Brexit is causing ‘noticeable impact on the economic outlook’, citing the ‘uncertainties associated with Brexit’ and ‘Brexit-related constraints’, as having a detrimental effect on the financial system.
For the average UK citizen, there are some concerns that the cost of borrowing will now increase and therefore negatively impact those applying for mortgages and loans. The move is also expected to affect homeowners on interest only mortgages who have been enjoying low repayments with the potential to increase monthly payments. With nearly 4 million homeowners currently on variable or base-rate trackers, an increase of up to £12 per month could be seen for those with the average repayment loan of around £90,000 on their mortgages. There is also concern that many people who have never seen a rate-rise in their lives will be caught unexpected, and this could further squeeze a population where falling wages and consumer debt are prevalent.
The British pound fell sharply immediately after the announcement, but many analysts are still seeing this as a ‘one and done’ rise and do not expect to see any further changes emanating from the Bank of England until the terms of Britain’s Brexit is defined.
By Simon Black, CEO, PPRO Group
If we suddenly learnt that the world would end tomorrow, someone would make money from the discovery. At very least, to quote Tom Lehrer[1], Lloyds of London would be loaded when they go.
No matter what happens, someone somewhere finds a way to turn a profit. The trick is, being that someone. With Brexit, so much focus has been on the negatives that we think that there’s a danger that opportunities will be missed.
Here’s our guide to having a good Brexit.
E-commerce and cross-border lead generation
The exchange-rate for sterling has fallen so low, that the pound is almost at parity with the euro. For cross-border e-shoppers from the rest of the EU, that turns Britain into a massive bargain store.
With even a minimal effort at promotion, UK merchants can attract price-conscious EU consumers. In fact, UK SMEs saw their international sales rise by an incredible 34% in the last six months of 2016, three times the increase in the first half of the year[2], due to the exchange rate. If ever there was a time to feature the Union Jack accompanied by the words (suitably localised) ‘Brexit bargains’, in your promotions, it’s now.
That’s great, as far as it goes. Everyone wants extra trade even if we’re effectively selling at a discount. But it’s not sustainable and its continuation cannot, in any case, be taken for granted. At some point the pound will rebound or bargain hunters will revert to their previous shopping habits.
So, what to do?
Turn today’s cross-border bargain hunters into loyal repeat shoppers. Invest now in data collection, strategic planning and customer-experience improvements. Use the data you gather on your new customers to engage them and migrate them to localised version of your site. For now, keep them coming back with price-led promotions but over the next year, try to deepen customer relationship, learn their other purchase motivators and give them reasons other than price to keep coming back.
There is no sign of the Eurozone recovery slowing down; in fact, it’s quite the opposite, with the Eurozone economy growing twice as fast as the UK in recent months[3]. And there are already signs, particularly from the automotive sector, that this is releasing pent-up demand. In theory, there’s no reason why UK retailers can’t benefit by servicing this pent-up demand. Successfully doing so — particularly in the face of, for instance, uncertainty over customs arrangements after Brexit — is going to take nerve, commitment, and impeccable customer focus. But it is possible.
FinTech, the City, and a country that loves to borrow, spend, and invest
Brexit threatens a sizable chunk of the UK financial-services industry. Much of the business conducted by UK financial services, most obviously the Euro-clearing markets, relies on access to EU markets. That’s a fact. We can’t wish it away.
But neither Brexit nor the EU are everything. To take a couple of examples, London trades nearly twice as much foreign currency as New York[4], its nearest rival. This trade does not depend on EU markets. Around 60% of the world’s Eurobonds are traded in London[5]. Despite the name, these have nothing to do with the EU and the trade is not fundamentally threatened by Brexit. Similarly, the £60 billion-a-year London market for commercial insurance draws a third of its clients from North America, a third from the UK and Ireland, and a third from the rest of the world put together, including the EU[6].
The UK FinTech scene has the world’s biggest financial centre at its disposal. And if Brexit threatens to erect barriers that will hinder UK firms trading on the continent, the same is true in reverse. UK FinTech s will enjoy privileged access, in geographical and regulatory terms, to the enormous b2b market that the City of London gives them access to.
They will also have privileged access to the UK’s highly competitive retail finance market, worth £58 - £67 billion a year[7]. And there are signs that leaving the EU could help invigorate at least some segments of that market. A recent article in the FT[8] — not by any means a Brexit cheerleader — reported that small-to-medium UK providers of retail banking services are actively looking forward to Brexit in the hope that it will free them from onerous EU regulations designed for huge ‘too large to fail’ banks but now applied to all financial institutions, even smaller ones.
Taken together — along with the ready availability of investment for FinTech start-ups in London, and the UK’s sympathetic regulatory environment — these facts clearly signpost a potential future for the UK as a global B2B and B2C FinTech incubator.
But this won’t happen by itself. Right now, we’re still faced with the threat of a FinTech exodus. To make sure the UK’s FinTech motor doesn’t stall, the British government must work out a transition deal with the EU27 that gives London-based FinTech firms an incentive to keep at least some of their businesses here for long enough to see what opportunities Brexit and a post-Brexit UK could bring.
And as an industry, we need to lobby as hard for that transition as we have for a PSD2 that’s fit for purpose. Recognising that there are profound risks associated with Brexit does not stop us also looking for opportunity in it. Why should it? For as long as the world hasn’t ended, there is still business to be done.
Website: https://www.ppro.com/
[1] https://www.youtube.com/watch?v=frAEmhqdLFs
[2] https://www.paypal.com/stories/uk/open-for-business-paypal-reveals-online-exports-boom?categoryId=company-news
[3] http://ec.europa.eu/eurostat/documents/2995521/8122505/2-01082017-AP-EN.pdf/940abad8-436d-4758-b9d2-2156173a2c77
[5] https://www.lseg.com/sites/default/files/content/documents/20170105%20Dim%20Sum%20Bond%20Presentation_0.pdf
[7] http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/587384/IPOL_BRI(2016)587384_EN.pdf - Page 4 of 12
[8] https://www.ft.com/content/4e2967a4-8991-11e7-bf50-e1c239b45787
The UK’s Banking and Financial sector has experienced a strong quarter, despite ongoing uncertainty caused by the Brexit negotiations, according to figures recently released in the Creditsafe Watchdog Report. The report tracks quarterly economic developments across the Banking and Financial and 11 other sectors (Farming & Agriculture, Construction, Hospitality, IT, Manufacturing, Professional Services, Retail, Sports & Entertainment, Transport, Utilities and Wholesale).
Sales are up 4.19% from Q2, and the number of active companies and new companies have both increased by 5.9% and 8.5% respectively over the same period. This is supported by the rate of company failures, which has dropped by 4.0%. Total employment has also increased by over 1% in Q3.
The research shows a continued return to form for the Banking and Financial sector in terms of these core metrics. However, the financial health of the sector has been hit as the volume of bad debt owed to the sector has increased by 118.8% in Q3, with the average amount of debt owed to companies coming in at £246,318. Suppliers bad debt, the volume owed by the sector, has also seen a big increase of 127.1%.
Rachel Mainwaring, Operations Director at Creditsafe, commented: “While today’s Creditsafe Watchdog Report show signs of optimism for the UK’s Banking and Financial sector, despite the ongoing political and economic uncertainty throughout Europe and beyond, the levels of bad debt seen in Q3 are a serious cause for concern.
“One company, Pearl Finance Co Ltd, is responsible for over £80 million of bad debt owed to other sectors and we can see the potential for contagion if debt spreads across businesses in the UK. With a big increase in bad debt owed both to and by the Banking and Financial sector this quarter, we’ll need to keep a close eye on the industry over the coming months to see if it can rebalance.”
(Source: Creditsafe)
