Spread across social media sites and uttered consistently by the leader of the United States, Donald Trump, on several occasions, the term ‘fake news’ has seriously caught on. It has affected the way media platforms operate, the way the public perceives information and even how governments confront the spread of extremism. Below, Finance Monthly hears from Lyric Jain, CEO and founder of Logically, on the widespread economic impact of fake news.

Named word of the year in 2017, fake news has dominated both media and politics, shaping campaigns and influencing votes. However, while the conversation has been focusing on the implications it has on politics, many have failed to take into account the impact fake news has had on the wider economy. Not only do these misleading and misinformed pieces affect business and consumer confidence in products and companies, they can also lead to uncertainty and fallout from ill-informed political decisions.

Event driven trading algorithms act on information extracted from newswires and social media. The presence of fake news in these pipelines means the algorithms act on bad information. The larger operators in this market are aware of this vulnerability and have addressed them by making changes to their algorithms. Adversarial algorithms have sought to take advantage of these systems by publishing falsified information on social media and across the internet.

Fake news is not a new phenomenon, with evidence of it impacting the stock market dating back to the 1800s. In 1803, Britain was looking to declare war on France, but the Lord Mayor of London received a letter supposedly written by Lord Hawksbury claiming that the dispute had been settled amicable. This letter was taken to the stock exchange and subsequently led to the stocks rising by 5%. However, the validity of the letter remained under suspicion and was later found to be a forgery, forcing the Treasury to issue a statement to the press. By the time the hoax was noticed, stocks had changed hands, and it became impossible to track who had gained from the fraudulent letter.

Fast forward a few hundred years and you are looking at very similar events taking place surrounding the value of bitcoin. January 2018 witnessed the crash of bitcoin, the world’s most popular cryptocurrency, with the value falling by 50% in a single month. While the media is only one element in the rise and fall of market values, the development of cryptocurrencies has led to an explosion of online content criticising the most popular currencies. In the unregulated world of cryptocurrencies, many fraudsters have seen their opportunity to deliberately spread false information to affect the price of their holdings using social media, fake news sites and private chat apps, such as Slack and Telegram.

A prime example of this is the pump and dump scheme organised by a chat room called ‘Big Pump Signal’, who conspired to promote GVT through a bogus John McAfee twitter account. After sending out a tweet from the account declaring that GVT was the coin of the day, the value of coin increased by $15 in four minutes, with trading volume doubling. The chat group were able to monitor and communicate when the best times were to buy and sell the coin, before the value returned to it’s original cost 19 minutes later. The ability of these groups to communicate on private chats leave the uneducated and overeager traders at risk of falling into their trap.

We have also witnessed a rise of traditional fake news pushes targeting the financial market, creating mainstream media websites that promote false information. Most recently this approach saw a website that appeared as CNN run the story ‘Richard Branson and Elon Musk Invested $17million in a Bitcoin Tech Startup’. This simple approach led to more than 425,000 website visits between September and December.

While these examples of using fake news to exploit the market are not currently widely used, advances in NLG and further development of these schemes may lead to an information arms race between competing firms, with media consumers and targeted instruments being the likely collateral damage.

There are a few single metric tools available that attempt to rate the credibility of stories and track the implications of the story. However, we are working with partners in the financial services to build tools to specifically tackle the impact the rise of fake news has on their business. As with any fake news epidemic, it is important that people trace the origin of their articles they read before making any large investment and utilise these platforms to determine whether or not to trust the information.

With the recent monthly purchasing managers index behind us, we can look forward to this week’s Bank of England meeting and quarterly inflation report. Below Adam Chester, Head of Economics at Lloyds Bank Commercial Banking, discusses what to expect on Thursday’s meeting.

When the Bank of England meets this week, it could prove to be one of the most important policy meetings of the year.

What makes tomorrow’s update of particular interest is that it includes the annual deep-dive into the supply side of the UK economy, which has important implications for the speed and extent of future interest rate changes.

By assessing how the economy is performing in relation to its potential, the Bank can form a judgement about how much slack remains - the greater the slack, the greater the scope for demand to rise without pushing up inflation, and vice versa.

The Bank will give its verdict on whether demand is above what the economy can sustainably produce – the so-called ‘output gap’ – as well as how quickly the economy’s supply potential can rise – the so-called ‘trend rate’ of growth.

Before the financial crisis, the UK’s trend rate was estimated to be around 2.5% a year, but by last year it had dropped to 1.5%, largely down to a fall in productivity which has been blamed on Brexit uncertainty.

The Bank will also need to make a crucial judgement on how much spare capacity, if any, remains in the labour market.

A lack of slack

In last year’s update, the Bank concluded that the weakness of pay growth at that time suggested the labour market was operating with a small degree of slack. This no longer looks the case.

Over the past year, total employment has risen by over 400,000 to a new high, and the unemployment rate has dropped further – from 4.8% to a forty-two year low of 4.3%.

The latter is now below the Bank’s previous estimate of the sustainable, or ‘equilibrium rate’ of unemployment, which it put at 4.5%.

It is possible that the Bank could lower this estimate further, but to do so would likely raise eyebrows, as regular pay growth has started to accelerate – rising from an annual rate of 1.8% to 2.4% since last spring.

The Bank will also revisit its assumptions for population growth, the participation rate (the percentage of the adult population in the workforce), and hours worked.

The ageing population, declining immigration and changes in taxation and benefits will all have a bearing on this.

Overall, the Bank faces a tricky balancing act.

Arguing the case

If it is to conclude that underlying inflation pressures are likely to be benign during 2018, it needs to argue that either (i) the supply side is improving, most obviously due to rises in productivity and/or an increase in the amount of available labour; or (ii) that, for the time being, the outlook for demand is sufficiently weak.

On both counts, we suspect the Bank could struggle.

Firstly, there are no obvious signs of an upturn in productivity growth and recent increases in wage growth suggest the tightening of the labour market is starting to bite.

Second, there is little sign of any significant weakness in demand, with recent indicators confirming the economy is holding up relatively well.

Given this, we suspect the Bank will conclude that any spare capacity in the economy is continuing to be eroded.

While it is likely to cite ongoing ‘Brexit uncertainty’ as an argument for maintaining a ‘gradualist approach’ to policy, the implication is clear.

In the absence of a clear slowdown in demand, the Bank may have to raise interest rates more quickly and more sharply than either we, or the financial markets, currently anticipate.

The euphoric rally of US stock markets is sustainable through 2018, forecasts a leading global analyst at deVere Group.

Tom Elliot, deVere Group’s International Investment Strategist, is speaking after America’s leading market indices - the Dow, S&P, and Nasdaq - finished at a record high following the end of the government shutdown.

Mr Elliott comments: “There’s been almost continual chatter in recent weeks on Wall Street and beyond about the current melt-up, before a forthcoming meltdown. It supposes that we’re experiencing the last euphoric rally in an asset class bull market, before the collapse.

“Whilst, it’s true that Wall Street is the most overvalued of the major stock markets, I am sceptical about an imminent collapse. Where would it be coming from? The only real risk is that bank account rates or bond yields rise sufficiently to persuade investors to sell shares and invest in risk-free assets.

“But with the inflation so low and the Fed being so cautious, I don’t see that happening any time soon. Another trigger for a sell-off might be a US recession. But again, no evidence of one around the corner.”

He continues: “US stock markets are likely to be supported by continuing strong corporate earnings growth, limiting any pull-back in share prices. The weak dollar boosts export earnings, while strong consumer confidence supports domestic-focused sectors.

“Tax cuts will be a net benefit to US corporate earnings, but the impact of changes to the tax code on individual sectors is as yet unpredictable. Fourth quarter earnings statements and outlook comments being reported shortly will hopefully offer clues.”

Mr Elliott concludes: “Against this backdrop, I believe that the current rally is sustainable through 2018, with the worst scenario perhaps being a strong early part of the year, followed by consolidation -with minimal gains- over the rest of the year.”

(Source: deVere Group)

Bitcoin has since its inception, and especially during its 2017 growth spurt, become a bit of a culture, a religion almost. If you’ve heard about bitcoin from somehow, they likely sounded really passionate about it and excited to explain it to you. Below Fiona Cincotta, Senior Market Analyst at City Index, talks Finance Monthly through the bitcoin investment craze.

In 2009 when the bitcoin was invented, very few people thought it was worth a second thought. In June of 2009, a bitcoin was worth $0.0001. Even a year ago no one was really taking about bitcoin. It was a virtual currency that existed for those that were technologically advanced enough to understand it.

As humans, the feeling that we have been left behind or the feeling of missing out, is not one we relish. In many cases this is magnified when money is involved. Conversely, the feeling that we have jumped onboard the right ship is something we love to shout about, something that more and more bitcoin investors are doing. As the price of bitcoin continues to rise, the interest that followers pay to the virtual currency and the hype surrounding it grows exponentially. As the price goes up, so does the hype.

Bitcoin reached a staggering new all-time high on 20th November as the virtual currency broke through $8000 level for the first time, not just the first record high, but the third or fourth record high within so many weeks. Several new developments surrounding bitcoin have aided it’s 48% rally from $5500 just one week earlier.

Whilst the link between the rising price and growing following of bitcoin is indisputable, several recent developments have also increased its legitimacy. Firstly, CME Group plans to offer bitcoin futures from December 10th. Futures are a mechanism of agreeing to buy or sell an asset at a future date and the contracts can be used as a method of speculating on the assets price movement over time. CME’s support for the currency is giving it a legitimacy in the financial world that up until now it appeared to be lacking.

The move by the CME will also put more pressure on the big investment banks to join the party. So far, Goldman Sachs has suggested it could be open to the idea of a bitcoin desk, whilst JPMoragan have also expressed an interest in opening a bitcoin desk to serve clients’ needs. But could more legitimacy just encourage bitcoin followers to continue talking up what is starting to look like this generation’s dotcome bubble. Is the bitcoin a great example of investor enthusiasm driving to fever pitch, before it crashes?

Yet, the bitcoin religion is not just about an apparently phenomenal investment. To some of those involved, bitcoin is the future of money. It is not unheard of for bitcoin enthusiasts to compare where the bitcoin is now, to where the internet was in the 1990’s. One bitcoin investor said “bitcoin is one of the most important inventions of humanity. For the first time ever, anyone can send or receive money, with anyone, anywhere on the planet, conveniently and without restriction. It’s the dawn of a better free world.” Another claims that mankind “has never really owned their own money, it’s always been owned by their rulers. Bitcoin gives the ability for people to actually own their own money.” Here we can see that to some the bitcoin religion goes far beyond the investment itself and is the cusp of a social revolution.

Social revolution, new religion, or not, focusing on the bitcoin rather misses the point. More attention should be switched towards the blockchain, the technology behind the bitcoin. Whilst the technology is complicate the idea is simple, Blockchain technology enables us to sends money directly and safely from me to you, without going through a bank, paypal or credit card company. Blockchain technology has the potential to bring with it widespread change. Whilst JP Morgan CEO Dimon, called bitcoin a fraud, his bank has been using underlying blockchain technology to develop new processes. Blockchain technology is still some way off going mainstream, in fact the bitcoin bubble may have even popped before blockchain goes mainstream. Rather than the internet of information, the blockchain (rather than the bitcoin) could be the internet of value.

UK businesses optimistic about international trade plans – and view trade as a catalyst for growth, says new report from American Express.

The UK remains a uniquely connected major economy, and the future looks bright for the country’s trade activity; 39% of UK businesses presently trading internationally plan to increase their volume of trade over the next 12 months, and almost half (44%) expect their revenue from trade to increase within this period.

American Express commissioned the Centre for Economics and Business Research (Cebr) in October this year to undertake the Fresh Frontiers study to understand more about the dynamics of international trade opportunities across six major trading markets.

Based on economic modelling, the report reveals that the USA is the top untapped trading partner for the UK. In addition, continental European markets also feature strongly in terms of untapped trade potential, with Luxembourg, Denmark, France, Finland and Austria all ranking highly. This suggests the UK businesses should look to continental Europe and the US for future trade growth.

As part of the Fresh Frontiers study, American Express also separately surveyed businesses in each country about their international trade outlook. The majority (77%)  believe that opportunities for international trade are increasing and half are looking to trade with new countries over the next 12 months.

Reassuringly, the research also shows that the present economic turbulence isn’t deterring UK businesses when it comes to their trade ambitions: The vast majority (80%) of UK businesses trading internationally are confident in their global trade strategies, with bigger businesses (with 250+ employees) 11% more likely to be confident than SMEs. However, it seems that they are taking a cautious approach to their trade plans, with almost half (49%) describing their approach to international trade as ‘measured’ and 21% saying they are ‘risk averse’.

Despite the opportunities offered by international trade, businesses admit that they face significant obstacles when looking to trade. 75% of UK businesses surveyed believe that international trade is becoming increasingly complex, citing exchange rate volatility and economic changes as the biggest challenges to both their current and future international trade activity. UK businesses also revealed that making and receiving payments abroad was overly problematic (71%). However, less than half (42%) currently use FX forward contracts and only 28% use FX Options, despite the vast majority of those that do deeming them effective (87%).

Jose Carvalho, Senior Vice President at American Express Global Commercial Payments, comments: “It’s very positive to see UK businesses looking to international trade as a way to grow and undeterred by either geography or logistics.  As well as looking to new countries to trade with, businesses are actively seeking solutions such as FX forward contracts to overcome perceived barriers.  Technology has been a great catalyst in enabling this to happen.”

Cristian Niculescu-Marcu, Managing Economist at CEBR, says: “Taking into account key trade drivers, such as economic performance, regional trade agreements, low levels of corruption and institutions, the Fresh Frontiers analysis shows significant untapped trade potential for UK businesses both in the USA and closer to home.”

With 91% of UK businesses agreeing that digital technology makes it easier to trade internationally and 73% agreeing that they expect to see business growth through international rather than domestic trade over the next year, there has perhaps never been a better time to assess new trade potential around the globe.

(Source: American Express)

The US economy’s growth rate last quarter was recently revised on the basis of stronger investment from businesses and government bodies than previously assessed. GDP in Q3 was revised up to 3.3% annual growth rate compared to the previous quarter. This was according to the US Department of Commerce in a press release on the 29th November 2017.

This week Finance Monthly reached out to sources across the globe to hear their take on the current situation in the US, what has impacted growth across several industries, and what the forecast for 2018 looks like.

Josh Seager, Investment Analyst, EQ Investors:

US growth was revised to 3.3% annualised on Wednesday, up from an initial reading of 2%. This was the fastest growth rate in 12 quarters but there is likely to be some hurricane distortions, so we must interpret the data with caution, we don’t expect it to continue at this level.

Looking into the numbers and things look broadly positive. Consumer spending, which accounts for around 70% of the US economy, remained strong, growing 2.3%. This wasn’t quite as strong as last quarter but is a good level nonetheless and shows that the US consumer is relatively healthy. For the consumer to continue to spend, we really need wage growth. So far, this has been pretty anaemic in spite of very low unemployment. We believe this could be about to change. NFIB Small Business Surveys show that 35% of small business are now finding it hard to fill jobs and 21% are planning to raise compensations as a result. This data points are at cycle highs and this is highly likely to feed into US wage growth at some point.

Business investment picked up, contributing 1.2% to growth, up from 1% the quarter before. This is a pleasing sign as it suggests that corporates are gaining confidence in the economy and are willing to make the investment necessary to capitalise on this. Corporate profits were also up last quarter which should give corporates the financial freedom to continue to develop and (hopefully) growth wages.

Dan North, Chief Economist, Euler Hermes North America:

Consumer

• Despite tepid income growth and only modest spending growth, consumers are exuberant.
• Consumer confidence rose 3.3 points in November to 129.5, the highest in 17 years.
• The present situation component rose 1.9 to the highest level in almost 17 years, while the future expectations component gained 4.3, also a 17-year record.

Home Sales

• The actual level of annualized sales can be more revealing, and at 685,000 units it is the highest in ten years, which is undoubtedly good news. But it also illustrates the damage a burst asset bubble can cause.
• Despite having grown annually at 15% since the bottom, the current level of sales is still only half of what it was at the peak of the housing bubble, and it has only rebounded from the collapse to levels seen 20 years ago.
• But to repeat, the recent news is strong.

Holiday Shopping

• According to Adobe Insights, on-line sales rose 16.8% on Cyber Monday and 17% on Black Friday, extraordinary growth rates.
• But online sales are still only about 10% of total sales so these growth rates are not unexpected.
• The National Retail Federation (NRF) had predicted 164 million people would shop over the holiday weekend, but the actual results were 174 million.
• But then despite seeing more shoppers than expected, the NRF did not increase its previous forecast of 4% sales growth.
• The reports are mixed, but in the end we expect to see very modest growth in brick and mortar sales and very strong growth in on-line sales.

Tim Sambrook, Professor of Finance, Audencia Business School:

The upward revision, from previously 3.0%, was mainly due to a higher than expected increase in public and private spending.

The increase compares favourably with the second quarter of 2017 of 3.1%, and the third quarter of 2016 of 2.8%. It is the fastest rate since Q3 2014.

If the current estimate of growth in the Q4 GDP is realized, then this would represent the first time since 2004 that the US economy has posted three consecutive quarters of over 3%.

The growth rate is in line with the government’s target. They are engaging a tax cut plan to lift GDP to 3% annually. However, economists see such a pace as unsustainable and expect growth to slow sometime in 2018.

If you were to look for some bad news in the revision, then you could point to the fact that the revision comes from public and private spending and not consumer spending, which makes up 70% of the US economy. In addition, inventory build-up was significant and could prove to be a drag on growth in the future. However, this upward revision comes with a backdrop of severe hurricanes and low wage growth, which should have been quite negative for consumer growth.

This positive news will strengthen the case for the Fed to raise rates next month, although the announcement had little effect on the dollar or the markets.

Duncan Donald, CEO, The London Academy of Trading:

The highlight of last week’s US data card was the release of the GDP numbers for the third quarter of 2017. The number brought US GDP from 3% to 3.3%.

This is slightly above the median expectation of 3.2%, and shows the US economy continues to expand progressively with the GDP reading being the most aggressive since late 2014.

But in context, what does this mean for the US rate path, as the December rate decision from the Federal Reserve rate setting committee comes next week? From freshly inaugurated Federal Chair Jerome Powell’s perspective, the data is on course for a hike. Even the departing Janet Yellen appeared to shift her dovish tone, referencing data with the possibility of a hike in December.

We need to look no further than the recent performance of US stocks and the dollar for confirmation that the market believes in the upcoming rate hike. Despite the ongoing investigation into President Trump’s electoral campaign, which is an obvious anchor, there are no signs of a slowdown in the US positivity story. The one final hurdle for the market to overcome ahead of next week’s decision is the Non-Farm Payrolls on Friday. The data has been somewhat muddied over the last few months, as hurricanes have taken their toll. However, this month, we should expect to get a true reading on the strength of the US jobs market.

A strong Friday performance will push the market up the final few percent towards a December hike.

John Lorié, Chief Economist, Atradius:

Across the Atlantic, the US economic outlook is also robust, which is reflected in high business confidence. US GDP is expected to expand a solid 2.0% in 2017 and 2018. The positive outlook is supported by strong job growth, very low and still declining unemployment, and even firming wage pressure. In this environment, the number of bankruptcy filings is at historical lows. In Q3 of 2016, the number of bankruptcies in the US reached its lowest quarterly level since Q4 of 2006. We forecast a 4.0% decline in the overall number of insolvencies this year and a mild 2.0% decline in 2018. The US outlook is subject to risks, on the upside (tax reform) as well as downside (trade, NAFTA).

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

Following the Panama Papers leak of files from last year, earlier this month, the Paradise Papers leak once again threw light on the world elite’s hidden wealth. 3.4 million confidential documents relating to offshore investments were leaked to Suddeutsche Zeitung, the same German newspaper that took hold of the Panama Papers in April, 2016, which then shared them with the International Consortium of Investigative Journalists (ICIJ) and a network of more than 380 journalists. The files reveal that large corporations, heads of state, politicians, celebrities and High-Net-Worth individuals are investing huge amounts of money in offshore tax havens. Surprise, surprise. And whilst about 100 media outlets worldwide are pouring over the findings, that include the Queen’s private estate allegedly being invested in a Cayman Islands fund, as well as offshore dealings by Donald Trump’s cabinet members, advisers and donors, a lot of people have asked the question: “What exactly is the problem considering that tax avoidance is legal?”

Panama Papers vs. Paradise Papers

Of course, as with everything, opinions are divided with many ordinary people finding tax avoidance to be offensive and unfair, while others feel that it is a perfectly fine way to save some of their hard-earned money. However, does the muted response to the Paradise Papers scandal show that we don’t care as much anymore?

Following the leak’s predecessor, the Panama Papers, thousands of people gathered to protest, which immediately resulted in politicians stepping aside and losing their jobs. Iceland’s ex-Prime Minister, Sigmundur Davíð Gunnlaugsson, resigned amid widespread protests and outrage over allegations that his family had sheltered money offshore. In contrast, it seems like this time around, the public anger has been on a much smaller scale. Last year, US President Barack Obama called for international tax reform in the wake of the Panama Papers, whilst admitting that “The problem is that a lot of this stuff is legal, not illegal.” However, whilst some wealthy public figures suffered personally and governments and organizations have put out a handful of fixes in recent years, the system remains perfectly intact.

So, are we all silently waiting for that potential reform, or have we simply come to terms with the fact that tax avoidance is fine and the rich and powerful will continue dodging tax?

The morality of offshore tax havens

It is a fundamental principle of democracy that everyone obeys the law. The law applies to everyone. The law states that we have to pay taxes. Whilst in most cases, putting your money outside of your financial regulations is legal, many argue that dodging taxes is morally wrong. In addition, according to a  letter to world leaders from May 2016, more than 300 economists argue that: “The existence of tax havens does not add to overall global wealth or wellbeing; they serve no useful economic purpose.”

By sheltering trillions of dollars offshore ($10 trillion according to Boston Consulting Group), the world’s top end make their money untaxable, depriving governments of hundreds of billions of dollars of tax revenues each year. Niels Johannesen, an Economics professor at the University of Copenhagen discusses the consequences of this behaviour: “Either a lot of people pay more taxes [to compensate], or there’ll be less public goods - schools, hospitals, and so on.” He also adds: “Given that this offshore wealth is to a large extent owned by the very wealthiest… it is people who should be paying the highest taxes who are evading the most.”

Thus, not only do offshore tax havens not serve any economic purpose, but they’re also immoral and deprive economies of funds that could be used on improving public services. Some politicians are recognising the issue, such as the Leader of UK’s Labour Party Jeremy Corbyn, who promised that if his party wins the next General election, it would clamp down on tax havens and end loopholes. The Paradise Papers have once again highlighted the need for this to happen. Yet, the notion that the majority of those involved are ‘getting away’ with tax avoidance, paired with the seeming apathetic response from the public appear to be rather worrying.

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.

From diesel tax penalties and calls to rule out a further rise in insurance premium tax, to housing ambitions and planning laws, UK Chancellor Philip Hammond has faced a lot of pressure this week, ahead of the announcement due tomorrow.

Below Finance Monthly has heard from a number of source in the industry on what they expect, predict and would like to see come from the announcement, in this week’s Your Thoughts.

Adam Chester, Head of Economics, Lloyds Bank Commercial Banking:

Tomorrow’s budget will have to strike a difficult balance. Improvements to the public finances had given some room to ease policy, but that will be squeezed when the Office for Budget Responsibility revises down its growth forecasts on Wednesday.

The commitment to reducing the so-called structural budget deficit to below two% of national income by 2020-21, gives us a framework to assess how much room there is for any giveaways.

At the March Budget, the structural deficit was forecast to undershoot the two% target by £26bn. It’s now set to fall £6-8bn short of the March forecast, mainly due to stronger-than-expected tax receipts.

However, the OBR warned it will dial down its productivity forecasts, and we estimate a 0.4% downward revision would increase the structural budget deficit by around £15-£20bn.

On top of this, new funds are being sought for areas including Northern Ireland, public sector pay and the NHS, which would likely mean breaching the two% cap.

However, we suspect any available wiggle room would be used to fund a modest fiscal giveaway in order to keep borrowing and debt projections on track.

Matthew Walters, Head of Consultancy & Data Services, LeasePlan UK:

Fleets have been subjected to a lot of change in 2017. April saw the introduction of a new Vehicle Excise Duty system and new rules for Optional Remuneration Arrangements. July saw the publication of the Air Quality Plan, with its promise of Clean Air Zones around the country. And now it’s the turn of the Chancellor’s first Autumn Budget.

This Budget cannot add to the uncertainty facing fleets and motorists. In fact, it should provide clarity. The Chancellor must take the opportunity to reveal the rates of Fuel Duty for next year, as well as the rates of Company Car Tax for 2021-22 – and preferably beyond.

We’d like to see the Chancellor maintaining the freeze on Fuel Duty rates for another year – or perhaps even cutting them for the first time since 2011.

In addition, the UK Government is working hard to encourage the uptake of Ultra Low Emission Vehicles (ULEVs). We will have to see what incentives the Chancellor has up his sleeve.

Stephen Ward, Director of strategy, the Council for Licensed Conveyancers (CLC):

An Englishman’s home may be his castle, but purchasing that castle, family home or two bed flat is an archaic process that needs to be updated. The conveyancing market has never been in more need of attention and next Wednesday’s autumn budget presents Philip Hammond with a real opportunity to let the genie out of the lamp and demonstrate a real commitment to innovation in the property transfer process. We have three wishes for next week, namely:

• The allocation of a small fund to drive R&D for wholly new approaches that the private sector can then deliver and export in finding solutions for improving the availability and comparability of information on price and service for consumers;
• Incentives for conveyancing providers to invest in new IT to provide better, more secure transactions;
• Help for the industry in preparing for outcome of DCLG work on improving the conveyancing process that will deliver solutions we can export.

James Hender, Partner, Saffery Champness:

Stagnating productivity means that any rabbits which the Chancellor wishes to pull out of his budget hat are not looking too healthy. OBR forecasts have eaten into the £26bn headroom the Chancellor thought he had, and though the expectation may be that Mr Hammond will spend to win some political capital, any tax gift will come at a price, and is likely to be subsidised at someone else’s expense.

The government is arguably stuck between a rock and a hard place on corporation tax. A fine balance will need to be struck between ensuring the UK demonstrates that it is open for global business, and being publicly seen to tackle any perception of big business not paying its way.

In this climate, the 2020 commitment to 17% Corporation Tax may be looked at again, and we can certainly expect rhetoric, if not concrete action, to further reinforce the government’s position in taking a central role on international tax transparency and anti-avoidance.

On appealing to younger voters: This is perhaps one of the most politically-charged Budgets of recent years, with many predicting that the Chancellor will use the occasion to try and appeal to a younger generation of votes. If Phillip Hammond is as bold as some have called for him to be, the implications of this political move on taxpayers could be significant.

Michael Marks, CEO, Smoothwall:

After Philip Hammond’s pledge in last year’s Autumn Statement to invest £1.9bn in cybersecurity, we can expect further funding (or at least reference) to this issue as the cybersecurity landscape heats up. Following a year that included the biggest cyberattack on the NHS and the Petya malware attack across the continent, cyber security needs to be an absolute priority for investment; without extra funding and protection, the Government risks undoing a lot of the hard work. So far, the near £2bn cyber windfall doesn’t seem to have had quite the desired impact.

Along with cyber security, I would like to see continued investment in the Enterprise Investment Scheme (EIS). It’s thought that the EIS investment may be reduced from 30% to 20%, thereby reducing entrepreneurial growth, and the UK could suffer consequently in the long term. As a country with a great track record of innovation, reducing investment in this scheme will have a detrimental impact on driving technology and business growth at a time when we need more people to ‘take that step’.

Stuart Weekes, Tax Partner, Crowe Clark Whitehill:

We would welcome a simplification of the rules and the removal of one of the two sets of Patent Box incentive rules as part of tomorrow’s announcements.

Very few companies are taking advantage of Patent Box incentives, which tax the profits from patented products at 10%, a nine-percentage point discount on the current 19% rate of tax. Many companies do not know about this and, for those that do, the complexity of the legislation has been a major barrier to making a claim. Once the UK exits the EU, will the government improve the benefit of the Patent Box, especially as the UK Corporation Tax rate will drop to 17%, making the margin for the Patent Box less attractive than it might otherwise be? Will this prompt a cut in the applicable Patent Box tax rate from 10% to 8%?

Chris Wood, CEO, Develop Training:

The UK Government has recently published an independent review concerning the increasing applications for artificial intelligence (AI). Its recommendations focus largely on the provision and development of training and education in academia and for master-level and PhD students. Support is recommended for organisations such as, and amongst other, the Royal Academy of Engineering, the Alan Turing Institute, and the Engineering and Physical Sciences Research Council. AI is likely however not only to influence academia but, over the next 10-30 years, affect almost all of the current activities we perform at work and at home.

The current skills shortage, felt most keenly in the utilities, construction and engineering sectors is the end-result of under-investment on the part of both government and industry over the last 30-40 years. It is inconceivable, and somewhat terrifying, that this will continue into the mid-21st century particularly against a backdrop of such monumental change. Therefore the 2017 budget should include provision not only for a greater understanding of AI from an academically-driven research perspective but also from that of every individual. Children, school-leavers and those who will be in employment for the next 30-40 years must be educated in how AI is likely to affect their jobs, careers and lives. To achieve this the government would do well to establish a national institute for the promotion, understanding and application of AI for the benefit of all.

Mark Palethorpe, CFO, Cox Powertrain:

There are Government incentives for small innovative businesses like ours, but the Patient Capital Review has promised to address the need to encourage long-term investment in step-change innovation. For some people, the investments required by smaller innovators are just too small to get excited about and, for others, investment levels are too big for the risk. You can get caught out whatever size you are. Results of the Patient Capital Review are expected to be announced as part of the Autumn Budget and we’d like to see more opportunities for investment in innovation. We’d welcome an increase in the cap that exists for tax relief investment schemes like EIS, which has worked really well for us but does limit the amount an individual company can invest.

Nigel Wilcock, Executive Director, the Institute of Economic Development:

For the good of the economy, in tomorrow’s announcement on the UK Autumn Budget we need clarity on the structures and budgets for elements of the Industrial Strategy; clarity on how Structural Funds will be replaced for regions and clarity on local authority funding – how the business rate retention mechanism and re-allocation system will work. Specifically, we are seeking commitments from the Chancellor to transport infrastructure that equalises expenditure per head between regions, greater recognition of the social care costs falling on local authorities and funding for state aid interventions for business. We also recognise that National Insurance contributions from employers need to be looked at – it is an important economic issue that variations in different types of employment contracts are allowing corporations to be avoiding contributions when the economy is at full employment. The tax take of the economy is increasingly disconnected from the level of activity.

Damian Kimmelman, CEO, DueDil:

The abnormally low level of interest rates could be weighing on productivity growth by allowing weak and highly indebted firms to survive for longer than they normally would, by alleviating the burden of servicing their debts. Better information is needed to identify these firms, understand their business and support those with potential.

We have seen the government put their full weight behind opening data initiatives, such as Open Defra, to huge effect. DueDil would like to see the government put their full weight behind Open Banking and ensure that all of the CMA 9 banks (and beyond) open up as much banking data as possible to stimulate innovation in financial services and put the UK at the fore-front of Open Banking globally.

The UKEF committee has pledged to continue supporting exports and export finance. More interestingly, they have pledged that they will digitalise and standardise the application and on boarding process for businesses applying for export financing. DueDil would like to see the government to fund a competition to build a solution that would support the digitalisation of UKEF, in order to ensure that SMEs can painlessly and efficiently access a market of export financing and to ensure the ongoing success of SMEs following Brexit.

William Newton, President & EMEA MD, WiredScore:

The UK has the largest digital economy of any G20 nation, but it is important that technological skills and innovation continue to be employed across a range of industries. The service sector, for example, currently accounts for the greatest share of hours worked at lower productivity levels in the UK. Therefore, digitising existing processes in this sector presents a massive opportunity to address this productivity concern.

If the Government is to enable increased productivity, it must ensure that the existing generation has the necessary skills to meet the demands of modern industry. We would like to see a policy on business rates incentives for organisations who can prove they are investing in their workforce's digital skills.

Earlier this year, the Government announced its intention to support business rate reliefs on new 5G Mobile and full fibre broadband in the Telecommunications Infrastructure Bill. This proposal was received favourably by network providers, and we are now witnessing commitments such as that made by Openreach chair Mike McTighe confirming a plan to bring fibre to 10 million premises before Christmas. As such, the impact of business rates incentives has already been shown to be successful in spearheading improvements to the country’s digital infrastructure. We now need to see digital skills getting the same treatment.

Katharine Lindley, Chartered Financial Planner, EQ Investors:

It could be a tricky Budget for the Chancellor with limited legislative time due to ongoing focus on Brexit. But first one of current Parliament so generally Chancellors like to increase taxes and hope people forget by the next general election. However, minority government makes controversial changes difficult:

• As increase in NI failed, doubt he will risk anything major– perhaps consultation on earnings and taxation of different sources, salary, dividends, bonus etc. Looking at tax reform around ‘workers’ rights with Uber/Deliveroo recent cases and growth of self-employed and single person incorporations.
• Re-announce the dividend allowance cut to £2k from April 2018 – risk it is reduced even further or dividends tax rates aligned with income rates.
• Some positive news on housing and releasing land, possibly relief on stamp duty for first time buyers to increase volume of property transactions.
• Possibly further increases on insurance premium tax to gradually align with VAT rate.
• Patient capital review and what happens to VCT/EIS. Providers are raising monies earlier than usually, but recent press has suggested the picture could improve for genuine start-ups. We may see increased restrictions on less risky ventures and more relief for higher risk and longer committed capital.
• Pensions – hopefully very little. A few rumours about raiding tax relief for ‘older people’ and giving an increased break for ‘younger’. Would provide good headlines but extremely difficult/impractical to administer.
• VAT threshold (£85k) for business either reduce or remove the inflation linking
• Business rates some relief on the high increases.

Mark Tighe, CEO, Catax:

The UK’s reputation as a world leader in Research and Development is essential to the welfare of the British economy as the Brexit process gathers pace.

In order for these smaller firms to compete on the world stage they must be innovating - which can be expensive. As it stands, current R&D tax credit legislation allows SMEs to take the risk of developing a new product, service or process - without undue worry over the financial impact if it fails or is never used. This creates a fertile environment for businesses to experiment and grow and supports the economy moving forward.

Mrs May used her speech at the CBI earlier this month to call on business to innovate more. She’s absolutely right to do so. The key now is making sure Philip Hammond follows through and makes sure the Government properly supports the firms that do.

Ed Molyneux, CEO and co-founder, FreeAgent:

Assuming that the VAT threshold is lowered - as some reports are suggesting - a huge number of contractors, freelancers and micro-business owners would be faced with a significant new administrative and financial burden.

It’s very unfair to position freelancers and contractors as not being on a level playing field with those who are employed. These business owners have none of the employment rights or the security that employed workers have and there must be some recognition for that - unless the government wants to slow the growth of this very important part of the UK economy - representing more than 95% of the UK’s 5.5 million businesses.

We would like to see some positive news in the Budget for the micro-business sector; whether it’s new legislation to help them overcome the chronic issue of late payment, easier tax rules to navigate or simply recognition of the recent Taylor Review and the ongoing status of those working in the gig economy. Freelancers and micro-businesses play a huge role in our economy - it’s time the government started supporting them.

Steven Tebbutt, Tax Director, MHA MacIntyre Hudson:

There’s a growing expectation that Entrepreneurs’ Relief will be attacked as part of the Autumn Budget 2017, which will prove an unpopular move with business owners and aspiring entrepreneurs. Such a change might appeal however to younger generations who feel that wealthy business owners shouldn’t benefit from such a generous tax saving measure.

The Government has already introduced “anti-phoenixing” rules to combat business owners abusing the relief by extracting profits through liquidation, only to resume the same business, sometimes multiple times or even ad infinitum. However, there remains a number of planning opportunities which the Government could still look to limit or close.

For example, it would be relatively simple for the Government to amend the legislation so that qualifying conditions have to be met for, say, five years, rather than the current one year which generally applies. This would immediately make it more difficult to structure disposals in advance of a sale to secure Entrepreneurs’ Relief, as business owners looking to sell would have far less opportunity for eleventh hour planning. Such a change would help ensure that only business owners meeting the conditions over a substantial period qualify for relief.

Robert Gordon, CEO, Hitachi Capital UK:

We know that clean air is on the agenda, as we have seen the Government proactively move towards legislation aimed at tackling the UK’s pollution problem, therefore we fully expect that tomorrow’s announcement will include some form of punitive measure towards diesel vehicles.

Growing uncertainty from consumers around the future of diesel vehicles has already fuelled a rapid decline in the market, with October sales falling by nearly a third compared to last year and any additional deterrent could prove to be decisive, in encouraging a phasing out of diesel vehicles altogether.

If this happens, the Government must be prepared to outline how it plans to fund the infrastructure improvements required, to give businesses and consumers the confidence to make the transition to vehicles powered by alternative fuels at a faster pace than we have seen to date.

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

The Chancellor is expected to follow an Office of Tax Simplification (OTS) recommendation to reduce the VAT threshold, currently £85.000, possibly as low as £25,000. This must look tempting since it could bring up to £2 billion into the government coffers, sucking 1.5 million business minnows into the VAT system. Depending on whether traders can pass the tax on to customers and who their customers are, this extra tax will be paid partly by firms and partly by households through higher charges for their plumbers, builders, taxis and hairdressers.

Quite apart from paying the tax, HMRC has estimated the cost per business of dealing with the VAT admin is £675 a year. Moreover, if there is no change to the exemption level for Making Tax Digital, currently set at the VAT threshold, from April 2019 those small businesses will also suddenly find themselves sucked into mandatory quarterly digital accounting.

By extending the VAT base, cutting the threshold narrowly skates around the Conservative Manifesto promise not to raise the level of VAT. And, no doubt, it will be dressed up as a tax avoidance measure aimed at traders operating in the informal economy. But make no mistake: this will be a stealthy and substantial tax rise.

Martin Ewings, Director of Specialist Markets, Experis:

As we await the Chancellor’s Autumn Budget with anticipation, the focus must be on driving growth in key areas and ensuring the long-term economic prospects of a post-Brexit Britain. Increased infrastructure spending is expected to be one of the pillars of the budget, injecting regions around the country with much-needed jobs and investment. But we must have the skills in place if the nation is to deliver on such projects, both now and in decades to come. The recent announcement of £21m to boost regional tech hubs around the country is a positive step, but more needs to be done if we are to close the ever-widening skills gap.

Digital investment will be an important component of this, and new technologies could hold the key. Philip Hammond is poised to focus on AI (£75m investment), electric cars (£440m investment) and 5G (£160m investment), while also pledging £76m to improving digital and construction skills more widely. With so many different priorities, it’s important not to lose sight of nurturing future talent. The Cyber Discovery programme is a great example of what needs to be done. The £20m government initiative, announced on Saturday, will aim to encourage and inspire 15-18-year-olds to enter the cyber security industry via a comprehensive curriculum. There will be three million unfilled jobs in cyber-security by 2021, but investing in programmes like this could go a long way to help ministers and businesses plug the UK skills gap, both now and in the future.

Craig Harman, Tax Specialist, Perrys Chartered Accountants:

Following the introduction of the help to buy ISA, first time buyers could once again be one of the winners from the budget as the chancellor is expected to announce changes to Stamp Duty Land Tax. This could include either a reduction in the rate for first time buyers or even a ‘holiday’ period providing a complete exemption for those able to benefit. It has even been suggested that there could be a fundamental overhaul by making the seller liable for Stamp Duty instead of the purchaser. This would benefit any individuals moving to a more valuable property as the liability would be based on the lower value of their current home.

Tax relief on pensions has been a bit of an easy target over the past few years with both the annual and lifetime allowance significantly reduced. It is likely that we will see a further cut in the tax relief available on funding for retirement. Some have even suggested a complete change to an ‘ISA’ like system, however this may be a step too far.

Individuals with significant dividend income have been penalised heavily over the past couple of years and this may be set to continue with many predicting either a cut in the tax-free dividend allowance or an increase in the tax rate.

Aziz Rahman, Founder, Rahman Ravelli:

The Paradise Papers have placed the issue of non-payment of tax back on the news agenda at a time when the Chancellor is announcing his tax priorities.

A large part of the Chancellor’s job is to assess and determine what taxation can be brought in from business. And in the current climate, everyone in business is under scrutiny to ensure they are paying what they should. This scrutiny can only increase if new or heavier taxes are announced tomorrow.

This may seem alarmist. But the Criminal Finances Act, which only came into effect two months ago, makes companies criminally liable if they fail to prevent tax evasion by anyone working for them; even if they were unaware it was happening. They can face unlimited penalties.

If businesses are to avoid prosecution, they must be able to show they had reasonable measures in place to prevent such wrongdoing. To ensure this is the case, they must review their practices and procedures to minimise risks.

This means ensuring staff are aware of the legislation regarding tax offences, having procedures in place for monitoring workplace activity and introducing procedures so that suspicions of wrongdoing can be reported in confidence.

The government is under huge pressure to tackle the non-payment of tax. At a time when the government is outlining its tax priorities, it would be foolish for those in business to fail to make sure their tax affairs are legal and above board.

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

Velshi & Ruhle grade the economy's performance under President Trump.

Today reports indicate the FTSE closed on a record high yesterday, outperforming its already high record from Friday last week, following the Bank of England’s anticipated decision to raise interest rates from 0.25 to 0.5% last week.

The truth is, this changes a lot, from mortgages to bonds. Below Finance Monthly hears from many sources on Your Thoughts, how consumers should behave, how banking may evolve, how profits can change, what might happen to the pound in weeks to come and so forth.

Anthony Morrow, Co-Founder, evestor.co.uk:

In theory, the rise in the interest base rate should mean that consumers get higher interest rates on their savings. However, people shouldn’t get too excited about this. It often takes many months for the changes to be felt in savings accounts, and even then, the increases in savings rates can be marginal and may take years to build into noticeable rates of anything over 3%.

Consumers should also consider that the increase in base rate still means that their cash savings are playing catch-up. The past decade of interest-rate squeezes has meant that the value of cash savings have dropped instead of increasing in value.

The best course of action is for consumers to spread their savings and investments, and to look for alternatives to the traditional high street savings accounts and cash ISAs. It’s now easier than ever for consumers to invest money via the internet in stocks, shares and global investment funds that could generate average returns of between 5% - 7%. The key thing though is to ensure people get advice about what to do with their money before they part with their cash – this isn’t always readily available – and to check any charges that they’re likely to incur for making investments. In some cases, excessive fees can eat massively into the investment returns, sometimes by as much as half.

Gianluca Corradi, Head of Banking, Simon-Kucher:

Investors with shares in UK banks can cheer as the rate increase will boost the operating profits in the retail banking industry by £274 million over the next 12 months. This 3.1% increase in the operating profit of the banks will be positive news for the shareholders as the U.K. banks have had their profitability squeezed in a low rate environment despite numerous cost cuts and efficiency increase measures.

The gain for shareholders is expected to come as banks increase the lending rates immediately but deposit rates only gradually and by a lower amount. We can expect the banks to immediately increase the interest charged on new loans and those on variable rates by the full 25 basis points (bps), giving a boost of about £1.26 billion in their interest income for the coming year. Concurrently, the interest expense on deposits is likely to rise by just under £1 billion as the rates for savers rise over time.

Consumers can expect modest returns on their deposits as rates, though higher, will still be low in absolute terms. For instance, a saver who manages to get the entire 25bps increase on £10,000 of deposits, would stand to make an additional £25 over a year.

Paresh Raja, CEO, MFS:

In light of rising inflation and stagnating economic growth, the decision to increase interest rates for the first time in a decade comes as no surprise. Nevertheless, it is important to note that the rise in interest rates will place an added financial pressure on first-time buyers and buy-to-let investors needing to borrow money. While the impact on the UK property market may not be immediately obvious, there is no question that this month’s upcoming Autumn Budget now takes on greater significance as it must find ways of alleviating stress and providing support for property buyers. With the interest rate now sitting at 0.5%, this is a prime opportunity for the Government to address issues like real estate demand and Stamp Duty to ensure the market remains buoyant and readily accessible for homebuyers and investors alike.

Angus Dent, CEO, ArchOver:

This rate rise of 0.25% is largely symbolic. At the same time, it’s also a year too late. Dropping the interest rate below 0.5% was the wrong decision in the first place. The Bank should have pushed rates up to 0.75% as a show of strength that would have driven inflation down as the pound rose.

Although this rise is unlikely to have any major material effects, it is a return to the trajectory we should have been on for the past year, and a good sign for a bolder policy. For many, the move towards a higher interest rate will simply mean business as usual.

Following the financial crash, there is a hunger to make up for ten lost years and UK savers and investors are finally waking up to the realisation that they need to chase higher returns. With interest rates remaining below 1%, this means looking for opportunities to branch out beyond traditional vehicles and introduce greater diversity into portfolios to secure a higher yield.

Emmanuel Lumineau, CEO, BrickVest:

This announcement is momentous for the UK economy and should signal the start of a series of gradual increases. The Bank of England has decided that inflation is potentially getting out of control and the economy now requires higher borrowing costs. The decision also signals that the UK economy has not performed as weakly as the Bank predicted last year.

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. There has certainly 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.

We continue to see the highest level of volatility from the office sector as many international firms currently headquartered in the UK put decisions on hold over their long-term office space requirements. If the UK no longer gives businesses access to the European market, they may need to spread their staff across multiple locations to more efficiently access both the UK and European market. Indeed our recent research showed that 34% of institutional investors 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.

Uma Rajah, CEO, CapitalRise:

The Bank of England’s decision to raise its base rate of interest from 0.25% to 0.5% might superficially look like good news for savers, who have had to live with near non-existent returns on their deposits for some time. But in reality it is highly unlikely that banks will actually pass on much — if any — of the rate rise to their customers. It’s more likely they will act to increase their margins, focusing on improving their own profitability rather than doing what’s best for customers. Savers should take note and look for alternative, more lucrative, ways to grow their pot with minimal additional risk. While the base rate will continue to rise over the next 12 to 18 months, it could be some time before banks pass on the benefits.

Meanwhile, the rate rise is bad news for property developers and borrowers that are using banks to finance their loans. Banks charge based on a margin to LIBOR, which will go up in line with the base rate rises. Combine this with other longstanding challenges in securing finance from banks for real estate projects in the current climate, and property borrowers will be much better off looking at more innovative sources that can deliver finance more quickly and offer better value — particularly if the rate continues to rise over the next 12 to 18 months.

James Bentley, Trader, Learn to Trade:

Following the Bank of England’s announcement that interest rates are rising by 0.25%, the British central bank will hike borrowing costs for the first time in more than 10 years due to the recent surge in inflation.

Many economists have warned that the time is not right for a hike as recent data has painted a subdued picture of the economy while uncertainty over how Britain's withdrawal from the European Union will play out remains. With Brexit negotiations still underway, British consumers should prepare themselves for further fluctuations to interest rates over the next year.

The pound has pushed higher against the dollar in early trade, while London's FTSE100 searched for direction ahead of the announcement. Although the announcement has created uncertainty, we expect inflation to drop to 2.2% by 2020 - where the rate will stagnate and hold for a period of time.

Paul Davies, Director, Menzies LLP:

Even though the rate rise was well signposted by Mark Carney, it will bring hardship for businesses that rely on consumer spending.

Consumers are always wary of a rise in interest rates and we may see the retail industry experiencing a bumpy ride as UK shoppers tighten their purse strings. Businesses can defend against the effects of turbulence by ensuring cash management is a top priority, managing creditor payments and adapting to changes across the supply chain.

Consumers and businesses will be hoping that after the announcement, any further interest rate rises will be staved off until well into the New Year.

Mihir Kapadia, CEO and Founder, Sun Global Investments:

The Bank of England has given in to the rising inflation, which has been above their 2% target and peaking at 3%, by raising interest rates for the first time in a decade. While the interest rate hike bodes well to support the pound, it also increases the borrowing costs for consumers and business. It will mean an increased squeeze on consumers with loans and mortgages, thus nipping their spending and in turn affect the economy. It may well turn out to be a vicious loop, especially as Brexit woes continue to weigh down on the UK’s economy.

The last the time the Bank of England had increased the interest rates was in July 2007, when it pushed the cost of borrowing to 5.75% months before cutting them during the onset of the financial crash of 2008. This increase comes at a time when the economic framework has stabilised and careful credit scrutiny is in place to prevent another crash. The interest rate hike may well deter consumers from accessing cheap credit, which will bode well for the financial watchdogs.

The next interest rate hike may well take a while, until further clarity emerges on Brexit’s impact on the UK economy. Until then 0.5% is the only sword to battle 3% inflation, and curtail it from strengthening any further.

Frazer Fearnhead, Founder and CEO, The House Crowd:

I sincerely hope all the banks will have given as much thought and effort to increasing interest rates for investors as they will have given to helping people maintain their mortgage repayments and loan agreements”. He added “For the past decade investors have been forgotten and suffered derisory levels of returns on their savings. So, it is crucial that banks, increase interest rates on savings just as quickly as they increase interest charges to borrowers.

Gregg Davies, Company Director, IMA Financial Solutions:

We all talk about the winners and losers when Bank of England interest rates are mentioned. Of course, if you have savings on deposit in variable rate accounts, or a variable rate mortgage you could be affected directly.

Many are asking, will the rate rise make my mortgage more expensive? Most mortgage lenders offer fixed or variable rate mortgages, and many have already adjusted their fixed rate deals ahead of the speculation over an interest rate rise. Variable rates are either based on a lender’s own set variable rate or linked directly to the Bank of England – called trackers.

We have now had nearly eight years of unprecedently low rates - for a generation of first time buyers, low interest rates are all they have known.

Mortgage holders have taken the low rates on board, and today it is estimated that over 70% of mortgages are fixed rate deals – compared with a low of under 40% in 2001. On a day to day basis this is reflected in my own clients’ decisions.

Rob Douglas, VP of United Kingdom and Ireland, Adaptive Insights:

For many businesses across the UK, the rise in interest rates and subsequent fall of the pound will require action. Companies are operating in the midst of a volatile market, where the sterling went from being at its strongest since the Brexit vote, to taking an immediate tumble after the rise in interest rates was announced. This market instability can upend budgeting and forecasting, making it difficult for finance and management teams to devise an accurate financial plan and make business-critical decisions.

Economic and market volatility require businesses to be as agile and adaptable as possible to ensure their financial planning models reflect changing assumptions and conditions. To do this, companies must plan in real-time, with current data from across the organisation, so that they can mitigate potentially damaging consequences, such as a negative impact on profit margins. What’s more, businesses should prepare to be more responsive by running ‘what if’ scenarios in advance that will, for example, reveal the impact the rise in interest rates could have on their business, allowing them to make better, faster decisions.

Ultimately, it is the companies with sound financial planning processes in place that will have a better chance at success when volatility strikes.

Johan Rewilak, Economics Expert, Aston Business School:

Since the crisis of 2007, interest rates have been at record lows, and whilst this hike has only moved them back to pre-Brexit levels, the larger worry is about any future potential rises.

Since the decision has been made, Mark Carney and the MPC have already faced lengthy criticism about how the rate hike will impact the economy. There are those who believe recession is around the corner and that there was a desperate need to maintain interest rates at the 0.25% level to prevent this.

Those advocating the rise have done so by optimistically looking at data that shows unemployment has fallen to levels unseen since the 1970s and that the rate of underemployment (those working part-time who wish to work longer hours) has dropped. Nevertheless, wage growth (a metric of longer term inflation) has remained subdued.

My concern is and will be surrounding financial stability. Household indebtedness and mortgage to income ratios are at troublesome levels and any hikes in interest rates mean higher repayments. If the interest rate hikes lead to recession, this will only magnify these issues and have cataclysmic effects on the financial system as it did in 2007. Whilst, higher rates may put people off from future borrowing, there is a tricky trade-off surrounding those already highly indebted.

The upshot of this rate rise is that at least Mark Carney has two rolls of the dice if Brexit negotiations or the economy starts to sour before negative interest rates become a possibility. That being said, why would anyone raise interest rates that may create a recession just so they have the ability to lower interest rates and to try cure the problem

John William Gunn, Executive Chairman, SynerGIS Capital PLC:

This was widely anticipated by the wholesale markets following the language of the MPC’s September statement. The main question mark was over any Brexit-related outlook uncertainty. As the market had been positioned for this rise a failure to follow through could have caused the MPC credibility issues and sparked yet more speculation around Brexit headwinds to the economy.

For the general public, the good news is that more people are on fixed rate mortgages than ever so the effects for homeowners should be subdued. More people are renting and many households are lucky enough to be mortgage-free. As mentioned in the MPC statement, debt servicing costs paid by British households would remain "historically very low" despite this hike.

It’s not so great for first time homebuyers (many mortgage deals were withdrawn in anticipation of the BoE’s move) but attention now turns to whether the Chancellor can offer any stamp-duty concessions in the Budget on 22^nd November.

It's good news for neglected savers and the retired. While still low, retirees shopping around for annuities should already be seeing improved rates. Not all high street banks will be passing this rate rise onto their savers. Some committed ahead of the decision but they were in the minority.

As with the FOMC (the Federal Open Market Committee = equivalent of the MPC) in the US, the first interest rise is psychologically important, as it reminds borrowers that base rates for the last 10 years are not at “normal” levels. It should not be forgotten that for the U.K this is just a reversal of the post-Brexit-result emergency cut in Aug 2016. Any pre-Christmas consumer sentiment change may affect spending at high street retailers who have had mixed trading results recently. As with the U.S central bank guidance, we expect any rate rises over the coming years to be on a slow and gradual basis.

Given the modest growth forecasts issued by the MPC and their expectation that inflation with peak at 3.2% in the October CPI release, we do not anticipate any further tightening from the MPC until Q3 2018. The Brexit influence is unlikely to go away soon, as noted by the MPC in their statement.

Duncan Donald, CEO and Head of Trading, London Academy of Trading:

Last week we saw the UK MPC and Mark Carney deliver a rate hike in the UK to 0.5%, the first hike since the financial crisis in 2007.

It came as little surprise, with the market pricing in a 90% probability of this action prior to the announcement on “Super Thursday”. The act of hiking rates is perceived as ‘Hawkish’ and would typically drive the currency higher, but the price action reflected this was all but priced in.

The other positive element of the meeting, was the split of the voting members of the committee. The result was 7-2, showing that 7 members of the committee were in favour of the hike, with just 2 members dissenting. Forecasters had thought the split may be tighter, with a 6-3 or 5-4 majority to hike. These being the first two factors announced to the market, saw the pound appreciate half a cent against the dollar from 1.3220 to 1.3270. This move was sharply unwound as the market plunged over 2 cents to 1.3040.

The driver was the announcement that Mark Carney and his committee anticipates just two subsequent hikes, and not in the next year but over the next 3 years. This signified that in the short term we are very much looking at the ‘one and done’ scenario. The fears of Brexit and the unknown have perhaps rightly got the committee apprehensive of doing too much too soon. This was further underlined at the weekend, with comments from Mark Carney regarding fears of inflationary pressures that could be caused if we were to leave the EU without a deal.

Market traders and investors still question Carney’s ability to actually deliver what he says he will, in this case to raise interest rates. This was the market opinion in the UK and in his previous position in Canada. He delivered on the interest rate hike, but as the markets reflect, it was done in the most dovish of manners.

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

Since 1968, there have been 1,516,863 gun-related deaths on US territory compared to 1,396,733 war deaths since the founding of the United States[i]. This means that up to 2015, according to data collected by Politifact, the death toll for citizens and visitors of the United States from domestic gun violence exceeds that of all the deaths from all the wars the US has participated in since its inception.

The statistics on US gun violence remain mind-boggling to many. A study by Health Affairs states that more than 100,000 people are shot each year in the US. 350 people are estimated to have been killed in American mass shootings[ii] this year, according to data gathered by GunsAreCool - a sarcastically named community that tracks gun violence in the country. In comparison, 432 people were killed in mass shootings in 2016 and 369 in 2015, which means that on average, more than one person is killed in a mass shooting for every day of the year. According to the Small Arms Survey via the Guardian, America has 4.4% of the world’s population, but almost half of the civilian-owned guns around the world.

Win $25 Free With $25 Kroger Gift Cards

For both individuals and society as a whole, gun violence imposes heavy psychological burdens. The media regularly highlight the emotional cost, and rightly so. But what is the economic cost of US gun violence? What is the financial cost to society from all that carnage?

The price tag

Back in 2012, Mother Jones, the liberal magazine, launched a three-year investigation, following the Colorado cinema shooting rampage in July, when James Holmes killed 12 people and injured 70. The magazine went through the combined annual impact of a total of about 11,000 murders, approximately 22,000 suicides and 75,000 injuries that are the result of gunfire. The findings of the investigation showed that the annual cost of fatal and non-fatal gun violence to the US was $229 billion, representing 1.4% of total gross domestic product. In comparison, obesity in the US costs the country $224bn, which makes the economic impact of gun violence higher than that of obesity. These $229bn are also the equivalent of the size of Portugal’s economy or the equivalent of $700 for every American citizen.

The study notes that about $8.6bn is direct cost, including emergency care and hospital charges, the expense of police investigations, the price of court proceedings, as well as jail costs. According to the investigation, $169bn goes to the estimated impact of victims’ quality of life, based on jury awards for pain and suffering in cases of wrongful injury and death, and the rest $49bn account for lost wages and spending.

It is of course worth mentioning the positive economic impact that the gun and ammunition manufacturing industry has on the country, which according to IBIS World was $13.5 billion in 2015, with a $1.5 billion profit. However, it is also worth pointing out the distinction between the profit from manufacturing the very products used in shootings, in comparison to the financial loss seen due to gun violence.

The impact on US firearm manufacturers 

In recent years, firearms sales tend to increase and gun stocks tend to rally in the immediate aftermath of mass shootings in particular. Shares on gun manufacturers such as Sturm, Ruger & Co. (RGR, +1.91%) and Smith & Wesson maker American Outdoor Brands (AOBC, +0.74%) rose sharply right after the mass shooting in Las Vegas from earlier this month, when 59 people were killed and hundreds were injured. Only a few hours after the deadliest mass shooting in modern US history, shares of Sturm, Ruger & Co. rose 3%, American Outdoor Brands jumped 5%, while Vista Outdoor (VSTO, -0.67%) popped 2%. The explanation behind this is quite simple - investors predict a rise in sales as people buy firearms to defend themselves and their families in the event of another potential attack. Sales are also likely to spike due to the fear that an attack may result in law changes and guns becoming harder to buy.

Despite the fact that mass shootings lead to increased firearm sales, research by Anandasivam Gopal and Brad N. Greenwood published on 28^th May 2017, points out that when mass shootings occur, investors appear to be reducing their valuations of publicly traded firearms manufacturers – an effect driven by the threat of impending regulation. However, these tendencies were most prevalent in 2009 and 2010, but seem to disappear in later events, indicating the possible markets’ acceptance of mass shootings as the ‘new normal’.

How do local economies respond to increased gun violence?

A report by the Urban Institute, published on 1^st June 2017, found that surges in gun violence in the US can ‘significantly reduce the growth of new retail and service businesses and slow home value appreciation’. According to the study, higher levels of neighbourhood gun violence drives depopulation, discourages business and decreases property values, resulting in fewer retail and service establishments, fewer new jobs, lower home values, credit scores and homeownership rates. The report features interviews with local stakeholders (homeowners, renters, business owners, non-profits, etc.), who confirm the findings, which state that  ‘Business owners in neighbourhoods that experience heightened gun violence reported additional challenges and costs, and residents and business owners alike asserted that gun violence hurts housing prices and drives people to relocate from or avoid moving to affected neighbourhoods’. In Minneapolis for example, the report finds that each additional gun homicide in a census tract in a given year was associated with 80 fewer jobs the next year, while average home values in Minneapolis census tracts dropped by $22,000.

Is gun violence really the ‘new normal’?

It seems as if the US lawmakers, and indeed large swathes of the US population, are now willing to accept gun violence as a part of their daily lives in a manner that may shock others. But what is more surprising is that a country founded on capitalism permits this as the status quo in the knowledge that gun violence is having a severe and negative impact on the US economy. From hospital fees through to deterring business investment, mass shootings and gun crime are the cause of considerable financial losses to the United States. These acts of violence cost the country a great deal of money, but most importantly – they cost lives. And although markets have seemed to accept mass shootings as ‘the new normal’, should this be the case for the rest of us too?

_______________________________________________________________________________________

[i] That figure includes American lives lost in the revolutionary war, the Mexican war, the civil war (Union and Confederate, estimate), the Spanish-American war, the first world war, the second world war, the Korean war, the Vietnam war, the Gulf war, the Afghanistan war, the Iraq war, as well as other conflicts, including in Lebanon, Grenada, Panama, Somalia and Haiti.

[ii] Mass shooting being defined by the FBI as any incident where at least four persons are killed with a firearm in a random act with little or no premeditation.