Countering the narrative that slow economic growth is "the new normal" for America's economy, the Pacific Research Institute today released the first in a series of reports from its new study, Beyond the New Normal, which makes the case that future U.S. economic growth can meet -or exceed - past growth trends if the right economic policies are adopted.

"America's economy has been stuck in neutral for so long that some economists claim that low growth rates are now the new normal," said Dr. Wayne Winegarden, PRI Senior Fellow in Business and Economics, and co-author of Beyond the New Normal.

"History has shown that when free-market policies are embraced, America's economic engine roars. President Trump and Congress should adopt these policies that have proven successful in growing the economy and lifting more people out of poverty."

Part 1 of Beyond the New Normal provides an overview of the case Winegarden and co-author Niles Chura will present arguing that free-market policies are needed to stimulate long-term, strong economic growth in the US.

Among the key points in Part 1 of their study:

• Average family income and average household income stagnated during much of the 1970s, and since 1999. Average annual real GDP growth has averaged just 1.89 percent since 2001.

• During times of slow economic growth, other negative trends, including slower average household income growth, greater income inequality, and increased poverty, have followed. These negative trends were reversed when the economy grew at a more rapid pace.

• Strong economic growth occurs when there is a pro-growth policy environment in place that:

1. Empowers the private sector to efficiently employ capital, labor, and technology;
2. Discourages value destroying rent-seeking behavior; and
3. Provides core public goods as efficiently as possible.

"Status quo thinking is holding back robust economic growth and keeping more Americans stuck in poverty," said PRI President Sally Pipes. "In this and subsequent volumes, Wayne and Niles make the compelling case that the President and Congress must instead embrace proven, free-market policies if we are to return America to the days of strong and sustained economic growth."

Dr. Wayne Winegarden is a Senior Fellow in Business and Economics at Pacific Research Institute. He is also the Principal of Capitol Economic Advisors and a Contributing Editor for EconoSTATS. Niles Chura is the founder of Ouray Capital.

(Source: Pacific Research Institute)

UK consumer price inflation rose by more than expected to 1.6% in December, from 1.2% in November. Consensus forecasts had pointed to a smaller increase to 1.4%. This is the highest rate since July 2014.

The market reaction to the figures was muted, with both the FTSE and the pound largely unaffected.

The main contributors to the acceleration in inflation were motor fuels, air fares, food and clothing – all of which have been affected by the weak pound. Food producers have faced sharply rising input costs, while oil is of course priced in dollars.

More inflation to come, in the short term at least…

December’s producer price data contains a strong indicator that higher inflation is coming. Input costs rose 15.8% year-on-year – the highest figure recorded for more than five years. It’s unlikely cost increases of this magnitude can be fully absorbed by firms, leaving them with little choice but to pass some on to consumers in the coming months.

The Bank of England says CPI inflation will exceed the 2% target by the middle of the year, though I wouldn’t be surprised if it happens sooner than that. Mark Carney also says the resulting squeeze on household budgets will cause the economy to slow as we move through 2017.

…but longer-term inflation should remain structurally low

However, the effect of the weak pound, assuming it doesn’t fall much further, is a one-off factor which will fall out of the figures eventually. The longer-term picture is one of structurally low inflation – due in part to demographic reasons. The baby boomers are starting to retire and have already gone thorough their consumption phase – they have bought their houses, cars and consumer goods. The younger generation is saddled with debt and struggling to get on the housing ladder. Workers don’t have the bargaining power over pay they once did, and wage growth looks set to be anaemic at best.

All this should mean less inflationary pressure and relatively lacklustre economic growth. Assuming the Bank of England is prepared to ‘look through’ what looks like a temporary spike in inflation, this should mean interest rates remain at rock bottom for the foreseeable future.

Authored by Ben Brettell, Senior Economist, Hargreaves Lansdown.

(Source: Hargreaves Lansdown)

In light of the UK’s Chancellor Philip Hammond’s Autumn Statement today, where he vowed to make the UK economy "resilient" in its exit from the EU, and noted an expected economy of higher borrowing and slower growth, Finance Monthly has heard from several sources who have given their opinions and comments on the Chancellor’s announcements. The comments below range regarding the productivity investment fund, tax free personal allowance, and the new NS&I savings bond, to the fintech sector, economic forecast, IR35 tax legislation, and general funding in infrastructure, R&D and more.

You can read about the key points delivered in Hammond’s Autumn Statement here.

CEO and Co-Founder of MoneyFarm, Giovanni Daprà:

Tax free personal allowance

By raising the tax free personal allowance and higher rate threshold, the government is providing Brits a terrific opportunity to save and invest more money. By 2020 when these changes are in full effect, people earning £30,000 will have close to an additional £300 in their purse each year while those earning £50,000 will be as much as £1,700 better off. Investing this money for the future, as it is earned, is an incredibly easy way to grow wealth over time.

News savings bond

The new savings bond announced today is a reminder from the government that interest rates are low so Brits need to consider an alternative to cash savings. Chancellor Hammond has provided a potential solution in terms of capital preservation – however a 3 year term at 2.2% will tie up money. Some expectations suggest inflation may shoot above the target 2% during that time frame, in which case locking money into this bond may hinder wealth growth.

This is one option but each individual needs to look at their personal circumstance and financial goals to see if a savings bond is a good solution for them. There are other alternatives to cash savings in the investment market, the growth of robo-advice has helped make this more affordable.

Kerim Derhalli, CEO and Founder of invstr:

Much has been made of the recent dip in venture funding within fintech, but we’re simply observing the typical cycle of an innovative environment. The fintech boom has seen rise to many impressive products, but also a large quantity of lower level pretenders who will, naturally, fall by the wayside. Venture capitalists have now reached a point where only the best ideas with real longevity will find funding.

The key for foreign investors looking to invest in the booming UK fintech scene is consistency. By essentially maintaining the status quo in today’s statement, Mr Hammond has gone a way to restoring calmer waters following the tidal wave of concern following Brexit and Donald Trump’s election. The reality is that, despite various forecasts, no one really knows what Brexit means so businesses will look to reduce their own volatility until details emerge.

The City is going to remain the hub of finance and fintech, irrespective of Brexit. The likes of Barclays and HSBC have already said as much. If a fintech start-up wants to succeed it needs to be where it’s at – which is the UK. For now, the outlook doesn’t look too bad.

Markus Kuger, Senior Economist at Dun & Bradstreet:

In the UK government’s first major economic statement since the shock Brexit vote, Chancellor of the Exchequer Phillip Hammond has announced a series of new measures designed to alleviate the economic pressures facing businesses in the UK. Firms looking to combat the continued slowdown of business growth and navigate fluctuating global markets should turn to data as the key to unlocking smart growth and mitigating risks.

A bleak forecast was expected from the UK government, and similarities with the US, following the surprise ascension to power of Donald Trump, won’t go unnoticed in the globalised business world. It’s also important to note that the long-term impact of Brexit is yet to be felt, as Article 50 is only likely to be invoked in Q1 of next year.

With levels of uncertainty remaining very high, Dun & Bradstreet is maintaining its ‘deteriorating’ outlook for the UK’s country risk rating. The two downgrades we have made to the UK’s rating since the referendum make the UK the worst performing economy in 2016, in terms of rating changes. In this light, we remind companies that it’s crucial to carefully assess growth opportunities, while preparing for the far-reaching negative implications of Brexit.

Geoff Smith, Managing Director of Experis UK & Ireland:

In response to the £23bn Productivity Investment Fund

It’s pleasing to see the Government pledge billions of pounds worth of investment into the tech and science sectors in a bid to create more highly-skilled and better-paid jobs. Despite high employment levels in the UK, productivity remains low, part of which is down to the rise in low-paid, low-skilled jobs, following the economic crisis, so it’s encouraging to see the Chancellor attempt to turn things around.

However, if we’re to see an improvement in wages and living conditions, it’s vital that we upskill the tech sector as quickly as possible. Organisations are struggling to find the right talent, and as a result, demand and remuneration for IT professionals continue to grow, with cloud, IT security and mobile skills most in demand, according to our recent Tech Cities Job Watch research.

Upskilling will be vital to success for businesses that want to retain their best talent. By offering the right training and development opportunities, organisations can support their employees in learning the latest skills as these evolve. This needn’t be a complicated or expensive process – a lot of the skills that IT professionals already have are easily transferrable.

To take advantage of the Government’s funding boost, businesses need to think about building their optimum teams for the future.  We work closely with our customers to ensure they have a long-term workforce solution in place when it comes to anticipating what skills will be needed three to five years from now, and the IT know-how required to deliver business success.

In response to the changes to IR35 tax legislation

While HMRC’s intentions to amend existing IR35 legislation in a bid to crack down on tax avoidance should be lauded, we’re concerned about the impact that the change in regulation will have on the IT sector. In an industry where organisations are already struggling to find the right talent, there is a serious risk of ‘brain drain’, whereby projects could be ground to a halt until they find individuals willing and able to work under the new regulations. In fact, we wouldn’t be surprised to see how such a change might encourage existing IT professionals to set their sights abroad to countries courting their talent in a post-Brexit world.

To mitigate against any likely risk, organisations should prepare for these changes now, and also optimise their use of talent for the long term. This can be done in various ways. Firstly, invest in Employed Consultants (ECs) that are permanently employed by recruitment companies and sit outside the scope of the legislation. ECs will be a steady investment for any project, and will offer organisations cost savings and flexibility. Secondly, if developed correctly, Statement of Work projects that clarify deliverables/results, resources, costs, and timelines will help ensure that all Personal Service Company (PSC) work is compliant with IR35 requirements. Finally, consider implementing a Managed Service which will help reduce the time taken to process a high number of contractors, by transferring all the admin and risk to the master vendor.

Lucy-Rose Walker, CEO of Entrepreneurial Spark:

The Chancellor’s pledge to provide an economic environment that drives productivity and supports growth sounds great for entrepreneurs, but we’re keen to see more support for early stage and scale-up businesses in the form of tax relief, access to finance and support for employing and developing people.

On broadband investment

Technology is a great enabler for business growth and here at Entrepreneurial Spark we’re seeing growing momentum across the UK in the technology sector. Investing in broadband will help more internet based businesses to grow, however many of our Chiclets and alumni are facing issues in accessing basic broadband services, so access for all should be prioritised before investment is made into 5G networks. We are currently looking to the future to help entrepreneurs right across the UK through a virtual business growth enablement programme so access to broadband is essential to help us deliver this.

On R&D funding

Investment into R&D is crucial for British firms to compete in a global economy. The commitment of £2 billion per year in tax breaks between now and 2020 for research and development will certainly help, however we’d like to see more done to help start-ups and scale ups access finance to help them grow.

On regional investment

The increased support for economies outside of London will help to strengthen entrepreneurship and economic growth across the UK through schemes such as City Deals and investment into regional transport infrastructure.

On the British Business Bank VC Fund

Unlocking £1bn in finance for growing firms through the British Business Bank as venture capital funding is a great step forward in helping start-up and scale-up businesses to invest in growth.

On Corporation Tax

Sticking to the previously announced tax roadmap is a good move for the Chancellor, reducing corporation tax to 17% by 2020 as previously planned is crucial at this time of uncertainty for British business. We hope this will see continued investment into UK start-ups.

Jake Trask, currency analyst at UKForex:

Sterling fell this afternoon as Philip Hammond announced a raft of measures in an effort to stave off a potential post-Brexit slowdown as we head into 2017.

The pound jumped earlier, as measures to tackle a lack of productivity were announced. However, this good news was tempered by the feeling that the statement didn’t go far enough with regards to infrastructure projects and other measures to promote growth. After an initial snap higher, the pound fell away as investors were left disappointed by the Chancellor’s stimulus package.

Ben Brettell, Senior economist at Hargreaves Lansdown:

We might have a new chancellor but Philip Hammond’s speech today came straight out of the George Osborne playbook.

Like his predecessor he was keen to stress the economic positives in his opening remarks, highlighting that the IMF predicts the UK will be the fastest growing major economy this year, with employment at a record high.

To be fair to Mr Hammond, the economy has proved surprisingly resilient in the wake of the vote to leave the EU. Nevertheless forecasts were unsurprisingly downgraded, to 1.4% next year and 1.7% the year after.

Also predictable were the abandonment of the commitment to eradicate the deficit by 2019/20 and the announcement of a mild fiscal stimulus, focused on housing and infrastructure, and with an emphasis on regional development and improving productivity.

This focus on productivity was welcome, and long overdue. The UK has fallen behind in productivity for too long, though it should be noted that promising to tackle the problem is much easier than finding a solution.

Danny Cox, Chartered financial planner at Hargreaves Lansdown:

We saw from the popularity of the NS&I ‘pensioner’ bonds introduced back in January 2015, how savers are desperate for a better return on their cash. With no end to low interest rates in sight a new bond aiming to pay 2.2% over 3 years and a limit of £3,000 is a decent gesture, but with inflation rising and heading toward 3%, its unlikely money in this new bond savings will do anything but go backwards.

Ray Withers, CEO of Property Frontiers:

This statement was less show-stopping than usual, though not without its moments. Hammond is apparently keener on setting top-level economic policy than laying out specific spending measures, which will sensibly (if less entertainingly) be left for individual departments. His overarching themes included easing pre-referendum austerity commitments, more (and less glamorous) spending on infrastructure and housebuilding, and help for struggling families.

The best way to help working people is simply to fix the economy, and we are hopeful that Hammond's moves on that front will be successful.

More interestingly for those of us in the industry, however, the Chancellor today cemented the place of housebuilding as the cornerstone of Mrs May's refashioned 'working for everyone' economy.

There is important work to be done on that front. 'Just about managing' families are more than twice as likely to rent privately as to own their own homes and the Treasury is clear about its intention to help would-be buyers get a foot on the ladder.

The main pledge today - a £2.3bn fund for 100,000 new homes in high demand areas - is relatively substantial, but even smarter is the focus on infrastructure spending in ways and places that support new development.

An encouraging takeaway from this supposedly final autumn statement is a clear indication that the government understands the need to make the rental sector more affordable in addition to beefing up its traditional focus on housebuilding.

With landlords still reeling from Osborne's final statement, we had been hoping that Hammond's first would also offer them some conciliatory breathing room in this area. A reversal of the recent changes around stamp duty and tax relief on mortgage payments, as a string of industry bodies have called for, was always a long shot and did not happen.

Indeed, the prospect of a silver lining of any kind faded fast with news overnight heralding a now-confirmed ban on lettings fees. The Chancellor in fact targeted landlords specifically with the rebuff: 'landlords appoint letting agents and landlords should meet their fees'.

A ban of this kind is something that has been the subject of debate for some time, and so not altogether surprising. Scottish renters already benefit from something similar, while English households reportedly face average fees of £337 per year. Some of those fees are indeed overinflated, but the key question is: who will eat the cost?

It is not difficult to imagine a farcical parlour game in which the Treasury passes the cost from tenants to agents, who pass it to landlords, who in turn pass it back to tenants. The only part of the chain at no risk of incurring the cost is the Treasury itself, and indeed a subsidy for agents to charge extortionate fees is ridiculous.

But this is indicative of a wider and more worrying misunderstanding in the government's handling of the private rental market: it is largely treated as a zero sum game in which losses for landlords are automatically wins for tenants. That is not the case.

With any luck, the repercussions of this new ban will focus the debate on the balance of pressures affecting every part of the rental supply chain - including landlords. Recent moves giving the Bank of England powers to limit overstretched buy-to-let mortgages, for example, seem like a better way of discouraging the darker side of the rental market than squeezing profits for all landlords.

We wish the Chancellor great success with his new program, and have faith that the pendulum will swing back if the desired corrections to the housing market do underwhelm. In the meantime it is not such a bad time to be a landlord: mortgage rates are at historic lows, and Savills projects rent increases of around 19% across the country in the next five years.

On a more local and self-centred note, we are delighted at the confirmation of a £27m expressway connecting our hometown of Oxford with Cambridge via Milton Keynes. Congestion is probably the main constraint on the UK's twin knowledge economies, and shortened commutes will be a welcome boost to our own staff morale, when it eventually happens.

Charles Owen, Founder of CoInvestor:

Hammond’s announcement to reduce the Money Purchase Annual Allowance is likely to come as a blow to those who currently benefit from double tax relief on their pensions. However, significant tax relief can still be found through investing in alternative assets, such as those under the Enterprise Investment Scheme and Venture Capital Trusts.

It is becoming increasingly important that investors assess how they can diversify their portfolio to protect themselves against economic volatility. Our research has shown that half (48%) of mass affluent Britons who decided to act on pensions freedoms now feel more in control of their own investments and 38% have already benefitted from alternative tax-efficient investments. Considering the decreasing state support and the growing mistrust in pension schemes, we expect this trend to continue as Britons look to take growing their pensions into their own hands.

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

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

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

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

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

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

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

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

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

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

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

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

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

Other key findings of the Global Business Monitor report include:

Challenges

• Rising costs are a challenge for half of all SMEs surveyed (50%) – the most frequently cited.
• One in five businesses describe the availability of finance as poor.

Investment

• Despite concerns over the global economy, 95% of SMEs plan to invest in their business in the next 12 months, with staff training, promotional activity and technology the most popular areas.
• SMEs in Germany and the US are most likely to invest (98%).

Payment terms

• Irish SMEs wait longest for payment from customers (38 days) followed by those in Hong Kong (37 days).
• In contrast, US SMEs are paid two weeks quicker (24 days).
• Manufacturing (39 days) and construction (40 days) businesses typically wait longest for payment when compared to other industry sectors.

Source: Bibby Financial Services

Labour productivity grew by 0.6% in Q2 2016, according to new data released today by ONS. As a result, the UK’s output per hour worked has returned to its pre-downturn level for the first time since the onset of the economic downturn. While productivity remains far below the level implied by its pre-downturn trend, this is the first time that the UK has passed this threshold.

New estimates of the ‘productivity gap’ between the UK and other leading economies are also published today. They show that the gap between the UK and the rest of the G7 remains stubbornly wide – at around 18 percentage points in GDP per hour worked terms in 2015 – unchanged on a year earlier. On this measure, productivity in the UK in 2015 was 27, 30 and 35 percentage points lower than in France, the USA and Germany respectively.

Public sector productivity is now estimated to have fallen by 0.6 per cent in 2015, revised down from the previous estimated fall of 0.2 per cent. Nevertheless, the trend since 2009 has been upwards, with cumulative growth of 3.2 per cent since that time.

These datasets are contained in the latest and largest quarterly Productivity Bulletin to date – which brings together statistics, analysis and research undertaken by ONS on productivity. This release also contains the first results of ONS’ pilot Management Practices Survey for the manufacturing industries. ONS results suggest that management practices vary widely across firms in Great Britain. They are more structured in larger firms and in multinational firms, and tend to be less structured in family-run and family-managed firms.

Commenting on the figures, ONS Chief Economist Joe Grice said:

“Productivity, and its sluggish growth over the last decade or so, are central issues for the UK economy. ONS has responded to this by making its measurement and analysis a key priority. Today's bundle of releases is the latest and most substantial of a regular quarterly series, dealing with productivity developments and its drivers, across a wide range of dimensions.”

Commenting on the Management Practices Survey, ONS Head of Productivity Philip Wales, said:

“The first results of the pilot Management Practices Survey are an important milestone, and suggest wide variation in management processes across firms. In time, these data and our other improvements to official productivity measures will help ONS, policy-makers and the research community to better understand the dispersion of firm-level productivity and our productivity performance at a macroeconomic level.”

(Source: Office for National Statistics)

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

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

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

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

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

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

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

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

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

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

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

(Source: www.boringmoney.co.uk) 

Retail investors withdrew £3.5 billion from UK investment funds in June, according to Investment Association data released today.

By comparison, in the worst month of withdrawals during the financial crisis, January 2008, retail investors withdrew £561 million from UK investment funds. In October 2008, just after the collapse of Lehman Brothers, retail investors withdrew £493 million from UK investment funds. Total assets under management are now around twice as high as they were back then, but June 2016 was still an exceptional month for outflows.

The exodus was led by investors in the property sector, who withdrew £1.4 billion from these funds, leading to some funds suspending trading, and others imposing hefty dilution levies on those who did want to sell.

£2.8 billion was withdrawn from equity funds across the board, with £1 billion of net withdrawals from the UK equity sectors.

£464 million was also withdrawn from ISAs over the course of the month.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown comments:

‘The scale of the exodus from investment funds in June is quite extraordinary, with the Brexit vote eclipsing the financial crisis in terms of putting the frighteners on retail investors in the short term.

The property sector saw the biggest outflows, as investors flocked to the emergency exits, concerned that the economic effects of leaving the EU would damage commercial property prices. Since the vote some property funds have been forced to suspend trading because of the high level of outflows, with others imposing high transactional charges on those wishing to sell. UK and European equity funds also saw heavy outflows over the course of the month, with fixed interest and absolute return funds being the main beneficiaries.

Clearly investors were rattled by the referendum, and switched out of assets they perceived to be at risk from a vote to leave the EU. UK investors who withdrew from equity funds are probably regretting this decision in light of the performance of the stock market since the referendum, and that goes in spades for those who cashed in their ISA allowance, losing that tax shelter forever.

This demonstrates the danger of events-based investing, because even if you do happen to guess the correct outcome, you still might not be able to predict the effect on markets and asset prices.

When it comes to elections and referenda, investors are better off voting with their polling cards rather than their finances. In these situations it pays to keep a cool head, to ignore the inevitable clamour, and to take a long term view on your portfolio.’

(Source: Hargreaves Lansdown)

Yesterday was a positive day for the stock market, with the FTSE 100 now trading close to a one year high, led by domestically-focussed stocks, and following on from second quarter UK GDP growth coming in ahead of expectations at 0.6%. Even the FTSE 250 is back in the game, and is now trading close to its pre-Brexit level.

Longer term total returns from the UK stock market are also looking pretty good right now, though clearly there has been some choppiness along the way, and no doubt there will be more to come.

Source: Lipper to 26^th July 2016

Laith Khalaf, Senior Analyst at Hargreaves Lansdown commented:

‘Today (27/07) there’s been positive news for stocks at both a micro and macro level. Domestically-focussed stocks started the day on the front foot, with Taylor Wimpey, Rightmove and ITV all posting robust results, and GlaxoSmithKline announcing £275 million of investment in the UK. The strong UK GDP figures added to the confident mood, as stock prices shrugged off the Brexit blues.

However, all today’s figures look back to a period predominantly before the referendum, and as such they give us little indication of what the vote actually means for the economy, or the companies exposed to it. They do at least tell us the economy has some momentum going into the implementation of Brexit, and may yet give the Bank of England pause for thought when they decide whether to cut interest rates next week.

Indeed much of today’s rise in GDP was down to the manufacturing sector, which recorded its strongest growth in six years. Ironically, the makers appear to be marching now George Osborne has left Number 11. Business and financial services grew, but at a slower rate than in the first quarter, whereas construction output went backwards. We can see uneasiness over these sectors reflected in the stock market, with UK banks and house builders still licking their wounds from the heavy share price falls sustained since the Brexit vote.

The UK’s mid cap index has staged an impressive recovery since the referendum, but there have still been casualties of the decision to leave the EU, with around a fifth of the names in the index showing double digit price declines since the result was announced.’

(Source: Hargreaves Lansdown)

Ultimate Finance Group, a leading independent provider of finance to UK business, announced that its total loan book to the UK’s SME sector has exceeded £100 million, with significant further funds available to businesses looking for support during this time of post-Brexit economic uncertainty.

Ultimate Finance’s loan book has increased by a third in the last 12 months, a period of record growth for the business. At a time when the vote for Britain to leave the EU is causing unease across the business community, Ultimate Finance’s commitment to support UK SMEs is stronger than ever as it begins ambitious expansion plans.

“The vote to leave the EU has caused concern for a number of our clients and for the wider business community,” explained Ron Robson, chief executive officer of Ultimate Finance. “We remain fully committed to supporting UK SMEs, and with the strong financial backing of our parent organisation, Tavistock Group, we have significant resources available to us, a strong appetite to lend and a tremendous team of people to provide the outstanding service our clients deserve.”

“In uncertain times it is vital that businesses have stable and reliable funding partners that they can rely on and who will not, as the cliché has it, “remove the umbrella when it starts to rain”.  In Ultimate Finance, our clients have that strong, reliable and knowledgeable business partner who will support them through whatever challenges lie ahead.”

“As part of Tavistock Group we have access to significant financial resources and are not dependant on financial markets or banks for our funding.  As a privately owned business ourselves, we understand the realities and pressures facing our clients and stand alongside them.”

According to Robson, the £100 million landmark is just the beginning for Ultimate Finance:

“We have ambitious growth plans that will see us strengthen our position across the traditional areas of Asset, Invoice and Trade Finance whilst also bringing an exciting and innovative pipeline of new products to market to address the changing needs of UK businesses.  We will continue to extend our geographical reach, providing a locally based service, backed up by the strength and commitment of a national business.”

Ultimate Finance already offers a wide range of lending-based products that allows it to offer a tailored solution for virtually any business.

“At heart and in action, we are very like the clients we serve,” concluded Robson. “We are a lean, flexible and helpful team that specialises in giving small and medium sized businesses the support they need to respond swiftly to changing situations. With ample funds to lend, a passion to see our clients succeed and experienced staff that have the freedom to use their own initiative, we are in a great position to ease post-Brexit business woes and surpass our own ambitious expansion plans.”

For further information please visit: www.ultimatefinance.co.uk 

Fluctuations in the real estate market caused by the UK’s vote to leave the European Union are likely to be shorter-lived and less severe than many investors fear, according to LaSalle Investment Management’s mid-year Investment Strategy Annual (‘ISA’) 2016.

The correction in real estate pricing is expected to be largely restricted to the next 18 months, and medium-term capital inflows into real estate will only be interrupted, not reversed, the ISA finds. It also suggests that, given the ultra-low interest rate and bond yield environment, UK real estate yields are only expected to increase by 40-50 basis points by the end of 2017, even if the country’s political landscape remains unclear. Meanwhile in Continental European, investors will continue to edge up the risk curve as long as the economic recovery continues largely unaffected, but will have one eye on risk contagion from the UK.

Overall, the ISA suggests that some of the fears currently surrounding the real estate market in the country may be overdone. Other findings include:

-The overall impact of Brexit on the Private Rented Sector (PRS) should be limited given the ongoing undersupply.

-Real estate assets with long, index-linked leases are likely to outperform over the next few years.

-The predicted capital market re-pricing will lead to an opportune time to enter the UK market – particularly for US dollar-denominated and Japanese yen-denominated investors.

Elsewhere in Europe, the headwinds facing London’s financial markets should help support the real estate market in cities such as Frankfurt, Paris, Dublin, and to a lesser extent Amsterdam and Madrid. Even before the impact of Brexit, office demand across Europe was undergoing a strong renaissance in cities with strong trends in Demographics, Technology and Urbanisation.

Globally, the ISA says the lower for longer situation actually boosts core real estate returns in the short-run, even as it dampens the long-run outlook for rental income growth.  As a result, real estate values for stabilized assets in major markets outside the UK may continue to increase or hold steady, but the cyclical recovery in fundamentals will be moving much more slowly now.  At the same time, cross-border and domestic capital sources in many countries could narrow their range of target investments to focus on these traditional, core themes.

Jacques Gordon, Global Head of Research and Strategy at LaSalle, said: “Across the globe, the fundamentals of supply and demand appear to be well-balanced going into the second half of the year in most of LaSalle’s major markets. Furthermore, turmoil in capital markets might also open higher-yielding buying opportunities from distressed sellers as the implications of the Brexit vote in the UK ripple around the world.  Although the UK has been the epi-centre for political and financial tremors since June 24^th, the law of unintended consequences suggests that investors should also closely watch for ripple effects in the EU, North America and even all the way to Asia-Pacific.”

Mahdi Mokrane, Head of Research and Strategy for Europe at LaSalle, said: “The UK, and in particular a dynamic London, home to one of the world’s most liquid, transparent, and investor-friendly real estate markets, is likely to reinvent itself outside of the EU, and the overall prospects for the UK outside the EU could well be broadly more positive than what is implied by current market commentators.

“We expect the forecast correction in real estate pricing to be largely restricted to 2016-17 and medium-term capital inflows into real estate will only be interrupted rather than reversed”.

(Source: LaSalle)

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Small, medium, and large companies alike in Singapore have been struggling for some time now, and OCBC Bank hasn't been immune to the declines. Unfortunately, economic conditions in the region have been far from positive to say the least, and when it comes to corporate growth, it is something that economic conditions must support. Unfortunately for the STI as a whole, and companies in the banking and financial services sector like OCBC Bank, it seems as though more declines are on the horizons. Recent economic news was released from Singapore, showing that the economic struggles in the region are far from over. Today, we'll talk about the data that was released, what it means for OCBC Bank moving forward, and what it means for the STI as a whole moving forward. So, let's get right to it...

Recent Economic News From Singapore

As mentioned above, the economic conditions in the Singaporean region haven't been positive to say the least. Unfortunately however, things seem to have gone from bad to worse with the country's most recent economic release. In the first quarter, it was announced that the economy in Singapore grew by 1.8% on a year over year basis. At first glance, that seems like incredible growth. However, when we look at the quarter over quarter view, things aren't quite as appealing as they seem.

On a quarter over quarter, seasonally-adjusted annualized basis, the fact that economic struggles in Singapore are far from over becomes incredibly clear. Looking at it from this angle, we see that the Singaporean economy actually only grew by 0.2% in the quarter. This shows a drastic slowdown from the 6.2% we saw in the previous quarter.

The Singaporean Ministry of Trade and Industry believes that the declines in economic growth are the result of global economic hardships. Here's what the Ministry had to say in a recent note...

“The Global economic outlook has weakened since early 2016, with global growth for the year now expected to be broadly similar to that in 2015. In particular, the growth outlook for the advanced economies has deteriorated marginally...”

What This Means For OCBC Bank

When it comes to the banking and financial services sector, companies are heavily swayed by economic conditions in the region where they do their work. After all, banks make the majority of their money in two ways, and both of them are heavily affected by economic conditions...

• Market Commissions – Investment banks make the most money when economic conditions are positive. That's because these banks make their money through commissions on the investments their clients make. When economic conditions are positive, investors tend to take a more aggressive approach, leading to larger revenues for the banks they work with when making their investments. However, when economic conditions are negative, investors simply aren't as active. This generally leads to declines for investment banks.
• Interest On Loans – Another way that banks drive the money in is through interest on loans. When economic conditions are positive, consumers tend to take out more loans, and perhaps more importantly, pay their loans on time. However, under negative economic conditions, consumers are less likely to take out loans, and many loans go into default, harming banks.

Given the ways that banks like OCBC Bank make their money, it only makes sense that the tough economic news out of Singapore is likely to have an increasingly negative affect on the value of OCBC Bank and other banking stocks in the Singaporean region.

The STI As A Whole Is Likely To Continue Struggling

Throughout most of the year, the STI has been riding downtrends as it still works to recover from the global market declines felt early on. Unfortunately however, it seems as though more declines are coming. With tough economic conditions on the forefront, there's simply not enough supporting growth in the index at the moment.

What Do You Think?

Where do you think OCBC Bank and the STI are headed moving forward? Let us know your opinion in the comments below!