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

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

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

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

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

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

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

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

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

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

What are Ferguson, Snell & Associates’ major achievements?

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

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

With news that average UK house prices surged by almost £4,000 in December, specialists from a leading Midlands law firm are questioning whether the so called ‘bank of Mum and Dad’ has started to have an effect on the property market.

“According to the Halifax, house prices rose by 1.7% in December, with the average cost of a property reaching a new high of just over £222,000,” says Neil Stockall, a Partner at Higgs & Sons and head of the Residential Property team.

“This represents the fastest acceleration in property values since the Brexit vote. According to the Office for National Statistics the number of 18-24 year olds living at home is around 3.3m.”

Neil added: “Perhaps the combination of being able to save more, plus some much needed input from parents, has helped some of these young people to take their first step on to the property ladder, thus resulting in this surge.”

Many parents want to help their grown up children in whatever way they can and it is increasingly common for first time buyers to turn to the 'Bank of Mum and Dad' for help in raising the required mortgage deposit.  Often parents use their nest eggs to provide that support – particularly with interest rates on savings being so low at the moment. However, there are several things that parents and their children should bear in mind if they want to avoid future problems.

“A common way for parents to help is to ‘advance their inheritance’ to children. This comes with dangers as, should a parent die within seven years of making such a gift, inheritance tax will be payable if the total gifts within those seven years exceed the parents’ inheritance tax allowance.

“Further, if the child is in a relationship or marriage that later breaks down, then the ‘gift’ from the parents may become part of any financial settlement, with half required to be paid to the child's ex-partner.”

Financial gifts of this nature can, however, be protected.

“It is important that when the new home is bought, the professional advisers involved in the process are made aware that the deposit has been given by a family member. The property title will be noted to reflect this, and an appropriate Declaration of Trust can be prepared.

“An alternative approach is to make any such payment by way of a loan rather than a gift and to have a suitable loan agreement drawn up which can be secured against the property. This approach would need sanctioning by any lender, so full disclosure should be made when applying for a mortgage.

“Any such loan could be interest free and the parent may not even really expect that it would actually be repaid, but in the event of a breakdown in their child’s relationship, they will at least know that that payment will fall outside any dispute.

“When it comes to the possibility of a breakdown in a child’s relationship, nuptial agreements may be extremely helpful. These are being given ever greater weight by the courts, provided they are entered into properly. Such agreements would be subject to various qualifications and it is important that expert advice is sought from a specialist in this area of family law prior to committing.”

(Source: Higgs & Sons)

The UK Car Finance market has grown aggressively over the last few years, fuelled in part by innovation and a growing ability to serve the sub-prime market.

Car-buyers have a number of options now available to them if they’re unable to be a cash-buyer – including Hire Purchase, Personal Loan and the newer Personal Contract Plan.

But flexibility on purchase options is only part of the reason for the strong growth in the market.  Car Finance companies have also embraced technological innovation to help them broaden their market into the sub-prime sector – i.e. those customers who have an impaired credit history and won’t be able to access finance from the high street banks at their leading rates.

The sub-prime lending market has always been eyed with both desire and caution by finance providers – on the one hand the sub-prime market offers the ability to charge higher rates of interest, on the other hand, the sub-prime borrower market, by its very nature, carries with it a high risk of default. Get the model right and a lender can make handsome profits, get it wrong and the bad debt rates can force a lender out of business.

The car finance market is slightly different to the personal loan market in that during most of the finance arrangements available, the finance company technically retains ownership of the car so can repossess the vehicle if things go wrong with the loan repayments. Traditionally though that was easier said than done – finding the car when the borrower knows the loan has defaulted may be tricky.

The introduction of technological solutions have helped finance companies not only track and locate vehicles but also ‘encourage’ the borrower to keep up the payments under their finance plan.

Immobilisers are often fitted to vehicles, particularly those financed in the sub-prime sector – i.e. those that present the highest risk of the borrower not keeping up the repayments – and they’re clever pieces of kit. Every month when the finance payment is made the borrower will receive a unique pin code to enter into the immobiliser. Fail to make the payment and enter the correct code, the immobiliser will kick in and the car won’t start. What’s more, the Immobiliser will also act as a tracking device making it much easier for the finance company to repossess the vehicle.

So at a stroke the finance company has a) heavily incentivised the borrower to keep paying (or their car won’t start) and b) made it much easier to recover the security for the finance.

The sum of which means that defaults and write offs are down, so the finance companies can be a lot more confident opening up to the illusive sub-prime credit market. Allowing more people to finance a car purchase than would previously have been able to.

All well and good? Well, certainly from the point of view of the finance companies (who book more loans and keep defaults to a profitable level) and the dealers (who get to sell more cars). But what about from the customer’s point of view?

At face value it looks to be good news for the customer, particularly those in the sub-prime space, as more customers are able to access a finance product for their car purchase. But, if the default rates are lower and repossessions are lower (and therefore write offs) – are the interest rates also lower?

A quick look at the top ranking sites on Google for ‘Car Finance’ found a Representative APR of 49.6 for applicants with bad credit – for a £5,000 loan over 4 years that’s a total interest of £5,236.

The interest rates charged cover the costs of providing the finance, including off-setting the loans that ‘go bad’ and are not repaid, and providing the lender with a return for its investment. The rate charged can be roughly translated into the risk represented by the borrower. The lenders have found technological solutions to reduce the risk of defaults and write-offs but still point to a borrower’s credit history to determine a level of risk – which justifies the high interest rates.

There is no regulation forcing a direct correlation of profit levels and interest charged but as we know, a highly profitable sector in financial services quickly attracts profiteering companies eyeing a quick (or large) buck. To keep this growing market buoyant but sustainable the lenders will need an element of self-regulation (and self-control), perhaps forgoing some of the bigger short term gains and passing on some of the profit to borrowers in the form of reduced rates.

(Source: Talk Loans)

I read an interesting article recently that outlined the way in which cloud adoption has changed the business landscape, causing a seismic shift in how organisations operate. Depending on your source, UK cloud adoption rates are currently anywhere between 78% and 84%, and whilst cloud is no longer a new phenomenon, its importance to not only the CIO but also the full c-suite of decision makers such as CEOs, CMOs and CFOs, is paramount as they jostle to gain a competitive advantage over competitors.

It has been argued that cloud adoption heralds the largest disruption in enterprise computing since the advent of the PC, with many industries embracing cloud-based platforms to not only cut costs but also drive efficiency. Despite this, there has been a certain amount of trepidation from the financial services sector to make the transition and fully embrace cloud and its many advantages.

At the mere utterance of the word ‘cloud’ we used to hear a plethora of reasons why financial services organisations could not make the leap. There were concerns over regulatory compliance as well as the complexity of functional replacement, security and control. And, in an era where financial institutions are more highly regulated than ever before, one could forgive these organisations for a tentative approach to change – especially when it came to new technologies that cloud put compliance at risk. To further validate this hesitance, financial services firms are reportedly hit with security incidents 300 percent more frequently than other industries.

However, over the past year, the UK financial services sector has taken a more confident and proactive approach to cloud computing. In mid-2016, following the publishing of the Financial Conduct Authority’s (FCA) final guidance for UK regulated firms outsourcing to the cloud, it was made clear that there is no fundamental reason why financial services firms cannot use public cloud services, so long as they comply with the FCA’s rules.  This statement and the guidance provided will certainly be welcomed by those UK financial institutions that have been hesitant to embrace cloud due to the lack of regulatory certainty over its use. This also serves as good news for the cloud sector too, providing a boost in the uptake of cloud services in the sector. Certainly, there are many examples of financial services firms using cloud while remaining in compliance with FCA regulations.

Regulatory compliance and managing cyber risk do not need to be the enemy of innovation. In fact, taking a risk-avoidant approach to experimenting with new business models, technologies or user experiences will be a fast path to obscurity in today’s business landscape, where innovation and competition can come from anywhere. Banks, hedge funds, asset managers, insurance firms and other players in the financial services ecosystem should seek out technologies that meet compliance and security needs but also enable agility and flexibility.

Here are three quick benefits that cloud can provide for the financial services sector:

1. Enhanced Security – Contrary to popular belief, businesses who take advantage of cloud computing may actually enjoy stronger security than those who try to go it alone or rely on their on-premise security technologies. The cloud is certainly more secure than many legacy platforms, so if financial organisations choose the right cloud service provider, they can actually experience a higher level of security than they would via legacy solutions.
2. Reduced Infrastructure – As your financial services firm grows, so does its information technology hardware and software needs. By migrating to the cloud, your company can reduce the amount of infrastructure stored onsite, share liability with qualified technology partners, eliminate much of the hassle associated with procuring hardware and software, and reduce costs in the process by moving IT CAPEX to OPEX. There is no longer a need to purchase multiple servers and supporting equipment, store it on-site and pay for the space and utilities to support the operation of that infrastructure.
3. Increased Business Agility - Cloud computing brings with it a number of benefits related to agility. First and foremost, cloud computing is all about scalability and flexibility on demand and financial services firms benefit from being able to roll out new applications very quickly or use the cloud for dev/test to drive innovation. Additionally, cloud computing is built with mobile productivity in mind. Employees need no longer be tethered to their desks. Applications and information can be accessed from virtually any device with Internet connectivity, allowing your staff the access needed to be effective, without being tied to the office.

By embracing cloud computing services, companies in the financial sector are able to add vast efficiency to their operations. As long as the risks can be managed, and with the right cloud service provider they can, there are many benefits. Cloud services – ranging from Production to Dev/Test to Disaster Recovery and backup - can help financial firms reduce setup and operating costs related to installing new IT infrastructure and negate the need to invest in more data centre space by making the necessary infrastructure resources available on demand. Perhaps most importantly for such a regulated industry, cloud services can help financial services firms gain IT innovation while protecting them against cyber-attacks, ransomware as well as maintaining compliance.

If your financial services firm has been hesitant about a migration to cloud computing, it may be time to reconsider. Enjoy stronger security, lower your maintenance costs and unleash the productivity potential of employees by migrating to the cloud.

Authored by Monica Brink, Director of Marketing, iland.

Last week the news was flush with panic that following Theresa May’s infamous Brexit speech, the UK will soon be leaving the EU’s single market, meaning the end of tariff free trade throughout the European continent, as has been for the last few decades.

According to the BBC, Theresa May stated that the UK “cannot possibly” remain within the European single market, as that would mean “not leaving the EU at all.” But does that truly mean the end of free trade with European nations, or is the meaning of this misconstrued amongst opinion?

Finance Monthly has therefore reached out to a number of experts, and in this week’s Your Thoughts feature, asked their opinion on this matter, how it may affect the public, what kind of deal could be made, and what it would mean for the future of the UK’s economy.

Anand Selvarajan, Regional Leader for Europe, RSM International:

The UK government’s decision to take single market access off the negotiating table is only the beginning of the debate for businesses with ambitions to work across Europe.

Ahead of any other concern, the number one priority for European businesses who work in the UK, is continued market access*. Whether this is through the common market as we know it, a customs union or something entirely new, businesses on both sides want to reach a practical trade deal between the UK and Europe.

A complex relationship between the UK and Europe on tax, trade or regulation will only stifle British and European businesses and threaten economic growth. If the UK chooses to erect a wall of bureaucracy between itself and Europe, everybody will share the cost.

Simon Evenett, Professor of International Trade, University of St. Gallen:

Facing the reality of exit from the Single Market, the UK wants a bold trade deal with the rest of the EU. Why should Brussels agree to negotiate a trade deal in parallel to divorce talks? Self-interest is Whitehall's first answer--but if the EU were really interested in getting the most from foreign markets it would have reformed itself years ago. Talk of avoiding a cliff edge just creates a massive game of chicken as the deadline for talks approaches in 2019. Economic threats won't scare Brussels.

The second carrot Mrs May dangled is security collaboration. But would the UK really deny critical information to a European neighbour about an impending terrorist attack if no trade deal emerged? Hardly. Before tough talks about substance begin, what price is the UK prepared to pay to get the negotiating agenda it wants? Be prepared for a harsh tutorial in the realities of trade talks.

Joan Hoey, Europe Analyst, Economist Intelligence Unit:

In a trenchant rejoinder to her critics, who have accused her of vacillation and indecision, the prime minister set out a very clear set of priorities for her government as it prepares to negotiate the UK's departure from the EU. Taking control of the narrative on Brexit, Mrs May spelled out four principles that would guide the government in the negotiations and 12 objectives that it would seek to achieve.

Most importantly, she made clear that the UK will leave the single market, as the referendum result implied all along. Mrs May's red lines on immigration and ending the jurisdiction of the European Court of Justice mean that the UK must, and will, leave the single market. Less clear is the future shape of the UK's trading relations with the EU: this is inevitable. It is impossible for the government to eradicate uncertainty about Brexit because the final shape of the UK's trading relations with the EU will be the subject of negotiation.

Mrs May stated she would like the UK to have tariff-free access to EU markets, but full customs union would prevent the UK from negotiating trade deals with others. This makes it likely that the UK will also have to leave the customs union, but may negotiate some kind of partial or associate agreement. If the UK leaves the customs union, the issue will be whether to negotiate a free-trade agreement (FTA) and, if so, how comprehensive would it be. Whatever arrangement is finally agreed, UK-EU trade ties are likely to remain intertwined.

The prime minister adopted a determinedly upbeat tone towards the EU, insisting that the UK wants to remain on the best possible terms with its continental neighbours after it leaves the union. In our view, the chances of a wholly amicable divorce from the EU are slim, but a completely hostile one could be avoided, as both sides also have an incentive to stay on good terms given the economic, political and security challenges facing the entire region in coming years.

The prime minister emphasised the upside of Brexit—not only in the sense that it opens up new global trading opportunities, but also because in the cause of improving competitiveness it will force policymakers to address some of the UK's structural deficiencies, in particular poor productivity growth, insufficient innovation and poor infrastructure. If the UK ends up leaving both the single market and the customs union, as now seems very likely, it would be forced to address these issues more urgently.

Alan Shipman, Lecturer in Economics, The Open University:

In her 17^th January speech, the prime minister pledged to abandon the UK’s European single market membership and negotiate for “the greatest possible access to it.” She rightly recognised this as the only way the UK can escape its present obligations of allowing free inward movement from the EU, transposing EU directives and “complying with the EU’s rules and regulations.

This is a heavy economic price to pay for the right to limit immigration from the EU, given that the UK has historically benefited economically from free flow of labour (inward during the long boom of 1994-2007, outward during earlier downturns). It is hard to show that recent EU immigration has done economic damage, even to lowest-paid households.

Although the prime minister couldn’t quite admit it (perhaps because of earlier pledges to Nissan) it will be near-impossible to leave the single market and deliver the promised bilateral trade deals without also leaving the EU customs union. So even if post-Brexit tariffs on UK imports and exports remain low, there could be a cumulative cost penalty for UK-based firms that have extended supply chains across the EU. Former trade partners will be still keener to re-impose non-tariff barriers (NTBs) on the many UK products they could substitute with their own. NTB removal was central to the Thatcher-inspired single market programme, whose payoffs are still rising in the service sectors most important to the UK.

Many were induced to vote for Brexit by politicians’ blaming the EU and immigration for hardships that owed more to their own policy choices. It is equally misleading to sell ‘hard’ Brexit by portraying the EU as a 44-year shackle on UK enterprise and political initiative. As an EU member, the UK closed its longstanding productivity gap, improving living standards and the environment, before its under-regulated financial sector crashed in 2008. Dropping labour and consumer protections and redistributive taxes, to redirect trade towards lower-cost countries, is not what most Brexiters voted for.

Alicia Kearns, Director, Global Influence:

There is a vision and we will be leaving. Membership of the single market holds these four pillars inviolable: free movement of goods, services, capital and people. The restriction on unfettered free movement of people was a key, but not sole, force behind the Leave vote and the Government was never likely to retain this since it would result in a Brexit outcome that pleased no-one.

This leads to the question of where the UK will find itself, a Customs Union looks increasingly unlikely since it prevents the formation of bilateral trade deals. Additionally, the Customs Union and indeed the Single Market represent a protectionist bloc, run ostensibly for the ‘greater good’ of its participants. But this only serves to redistribute wealth from consumers to corporates, vocal interest groups with strong lobbying influence. When this serves to limit trade with the rest of the world, and the benefits that come with it – one must wonder who are the primary beneficiaries of these controls in an organisation otherwise so enamoured with a frictionless economy. Theresa May’s play is to arrange trade deals with the rest of the world, aligned to what we as a country feel is absolutely crucial – in the hope this will offset any detriment caused by the protectionist and administrative hurdle faced by British trade with the Single Market.

Whilst time will tell how successful this move is, the challenge is to communicate this effectively. We need a vision narrative for Brexit. An individual narrative for allies old and new. What we can offer, and what they will gain; bespoke to each audience. We cannot rely on standalone speeches at pre-ordained times, we need an ongoing conversation with the British people and partners abroad. At home we must set our flag in the sand and rally to it; the narrative challenge will remain protecting our national interests first whilst keeping the UK public on side – and that means the Prime Minister not revealing her hand as no poker player would. Because let’s be clear, diplomacy is the ultimate poker game of self-preservation and influence. But that does not call for timidity, quite the opposite – as businesses, communities and individuals we each have a responsibility to hold ourselves accountable for the success of Brexit. We must step up to the mark and play our role in creating an even greater Britain. The Prime Minister has rallied the country; unity with integrity. Now it is our responsibility to stand by her.

Ismail Erturk, Senior Lecturer in Banking, Alliance Manchester Business School:

Leaving the single market in the short-term is very likely to increase costs in British businesses, which may wipe out any benefits from sterling’s depreciation. Over the medium- to long-term, if the trade negotiations after leaving the single market do not go smoothly, uncertainty is likely to reduce capital expenditure, hurting growth and employment in the UK. Increased costs in the shorter-term will involve spending money to navigate the new red tape in trading internationally outside the single market.

Some emerging economies are notoriously costly to do business with, as the legal structures and business cultures are very different from the EU. With currency, inflation and trade risks to manage, we’ll likely see an increase in the cost of hedging or remaining unhedged against such risks. For importers, these are likely to be passed on to the consumer prices in the UK, while profit margins for exporters will be reduced. Plus, businesses will also need to add in increased sales and marketing costs to remain competitive outside the single market framework and to find alternative markets – there are many obstacles which are likely to hurt profit margins.

Over the medium-term there will be real uncertainty due to trade negotiations outside the single market, which is very likely to reduce capital expenditure. If this reduction happens, it’s likely to hurt economic growth and employment in the UK. Since the 2008 financial crisis, productivity in the UK has deteriorated and this will have had an impact on the UK businesses’ competitiveness in international markets outside the single market.

All these short-term and medium-term risks necessitate financial support from the UK banks, but the banks have not fully recovered from the effects of the 2008 crisis – look at RBS, which is still in bad shape. Therefore, businesses are not likely to get the financial support to expansion and capital expenditure from the UK banks over the medium-term, hurting their competitiveness internationally.  Of course, there will be opportunities too for newcomers in the UK to develop business models outside the single market, and for existing businesses there will be opportunities to enter into joint ventures and other forms of business collaborations without the restrictions of the single market regulations.  However, the costs mentioned above, I believe, are likely to be much higher than the benefits of the opportunities.

Philippe Gelis, CEO and Co-Founder, Kantox:

We saw the pound surge as Theresa May outlined her plan to leave the EU. Whilst the decision to have a clear break with the EU, and subsequently lose single-market access, may not have been received positively by some, there is now at least, a clearer plan set out.

The impressive advance on the pound could have been exaggerated also by the current dollar weakness. However, what’s more important is how sterling performs moving forward. The plan by May is by no means concrete, and there is still a great deal of uncertainty regarding the economic impact of the UK’s exit – it’s likely that such uncertainty will keep investors away from the pound until the outcome of Brexit begins to materialise.

Only when negotiations develop in the second half of the year, (assuming everything goes smoothly), will we see a sustained recovery of the pound. Until this time, it’s likely that we’ll see the pound drop in value, with some experts predicting that this could reach parity with the euro. Yet, while we can predict an overall decline, there will be shifts and turns along the way, meaning the nature of the downward trend will not continue in a straight line. Businesses exposed to sterling should be ready to react in whatever way the currency moves. In moments of turbulence, it is vital for companies to safeguard their margins as best they can.

To do so, businesses should be looking at FX solutions that offer the ability to cover entire currency risk in an effective and timely manner – currencies cannot be treated in silo, but rather as a whole. It will also be important to analyse currency needs and exposure so that no matter the performance of sterling, or how complicated your FX needs might be, a comprehensive plan is in place to protect margins based on real numbers.

Lastly, businesses should look to simplify currency management – the pound is not the only currency that has the potential of shifting unexpectedly. This is why using an FX management tool that allows to efficiently handle multiple currencies will ensure that no sudden swings take the business off guard.

Catherine Hendrick and Adam Borowski, Synechron Business Consulting:

Volatility has been the only recognisable trend in Financial Markets since the shock Brexit outcome of the EU referendum. And whilst the UK Government has moved to ease the uncertainty amongst investors, it has at the same time dashed any hopes that a Brexit deal would maintain the UK’s membership to the Single Market. Or has it?

The UK’s Financial Services sector is envied across the world. It’s long-established financial infrastructure and legislative framework has provided the foundation for Banks and Corporates to thrive. Globalisation strengthened London’s position has a global financial hub through its unique competitive advantage of being located in a time zone convenient for business with both the US and Asian markets. This position was bolstered with the creation of the European Single Market and Passporting Regime, which shaped London as the golden gateway into Europe for Financial Services – it was simply the cherry on top.

The fundamental principle of the Passporting Regime is to minimise the regulatory, operational and legal burden on firms offering cross-border services within the Single Market. It creates the freedom for firms established in member states to provide and receive services. What makes it so lucrative is its openness, particularly to international firms – its why many American Banks choose London as a gateway for business in Europe. So why would the UK Government appear to disregard these benefits and leave the Single Market?

Game Theorists could classify the situation between the UK and the EU as a cooperative game, where the aim is to promote a joint agenda and work towards the same purpose. However, a mutually beneficial outcome, such as a free trade agreement can be a complicated outcome to achieve due to conflicting priorities. The UK wants to reclaim its sovereign power over immigration and its judicial system, whilst the EU wants to adhere to the freedom of movement principle whilst at the same time, deterring potential leavers.

The type of deal that will be achieved largely depends on who has the bargaining power. By default, this lies with the EU as the UK will lose out on 27 export markets whereas the EU will lose just one. Theresa May’s 12 Point Plan for Brexit was her first move in the game. It was an attempt to strengthen the UK’s bargaining power in order to maximise the UK’s interests during negotiations. On the surface it may appear that the UK has turned its back on the Single Market and is headed for a ‘Hard’ Brexit, in reality Theresa May’s stance may be the only way to achieve the best of both worlds; sovereignty and prosperity.

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

Last week reports indicated that UK inflation had reached its highest point in two-and-a-half years in December, after an unexpected rise in core prices pushed top levels upwards 1.6%. Here Finance Monthly benefits from an exclusive in-depth breakdown by Market Analyst Jonathan Watson at currencies.co.uk, who explains how recent spikes in inflation can have a dramatic effect on consumers, business and the rest of the public.

Inflation, the rate at which prices increase is in itself not a bad thing. However, in certain economic circumstances it can cause problems, particularly for the public at large. The UK as a net importer buys more from overseas than it sells. That means that when the Pound is weak or has a big fall as has happened since the Referendum vote, the cost of importing goods goes up. With the Pound expected to remain weak Inflation is expected to push higher in 2017. The good news is that wage rises are increasing as well, the bad news is that it might not be enough to keep pace with the headline rates of inflation in the wider economy meaning the public will overall have less money in their back pocket.

UK Inflation

Inflation is the rate at which prices rise. In an economy prices are continually changing according to various economic, political and social reasons. A degree of Inflation is acceptable and welcome in an economy since the opposite ‘deflation’, where prices fall is most unwelcome as it can severely hamper an economy as consumers and business delay purchases, anticipating their purchase will be less costly in the future.

In the UK Inflation is targeted at 2% and the main measure used is the CPI or Consumer Price Index. This looks at a continuous ‘basket of goods’ and assesses their changes in price over time. The latest Inflation report showed 1.6% which is the highest reading since July 2014. Throughout history there have been some big swings in Inflation, in the 70’s it was over 25%.

How does it affect the public?

Rising Inflation pushes up prices so the main effect on the public is to make goods and services more expensive for consumers and business. Rising prices therefore puts more of a squeeze on consumers as they have less money to spend. It puts pressure on businesses because they have to make a decision on either raising prices to cover their increased costs or reducing their profits. This negative impact on business impacts the public with either higher prices to the consumer or the prospect of workers being laid off as the business has to cut costs. Overall spending in the economy therefore declines as consumers and business have less money to spend as a result of the higher prices.

For example, fuel prices have been rising since oil is priced in US Dollars. The price of oil has risen globally (in itself an inflation boosting factor) but the fact the price of US Dollars has increased over
20% since the Referendum result further exacerbates this issue. Rising fuel prices will be an unescapable cost to the some 30 million cars on conventional roads. Businesses reliant on road haulage will see increased costs. Much of the UK’s food in supermarkets is delivered by road and therefore affected by fuel costs. Rising fuel inflation is a classic example of a negative effect for the public. It will mean the individual consumer will have to shell out more to fill their tank to drive to and from work and to take the kids to school. And when they finish work and stop to pick up their food to eat, there is a good chance Inflation will be making their weekly shop more expensive too.

There have been numerous high profile cases of rising food prices themselves. Back in October Tesco and Unilever fell out famously over the price of Marmite amongst others. We were told this would be the beginning of many such cases and almost weekly we are hearing fresh news of a household brand putting up prices. This weekend reports Nestle put up prices of coffee 14% will not be the last in this ongoing saga. One way or another rising prices feed into the wider economy. According to the Sunday Times Sainsbury’s raised the price of Nestle coffee by 14% this weekend whilst raising another Nestle product Pure Life Spring water 22%.

But it is not just necessities such as fuel and water that has risen. Luxury goods as such have also risen as international brands not only respond to the fact a weaker Pound means less value in their own currency, but also to try and keep prices harmonised globally. It was reported that Brexit saw a surge in luxury product sale in London as wealthy foreign shoppers arrived to take advantage of the cheaper products. Examples include Rolex, Burberry and other luxury items. Many of these brands have increased the price of their goods. Rolex last year raised prices by 10%, Apple increased the price of all their products last year too. And more recently raised the price of apps in their app store.

What does the future hold?

The key concern is whether Inflation will rise faster than wages. So far wage increases are running around 2.8% whilst CPI is as reported 1.6%. The worry is that wage inflation will not be able to match the price of CPI throughout 2017. The National Institute of Economic and Social Research (NIESR) have predicted inflation may rise to 4% this year.

This will mean consumers will have less money in their pocket which exacerbates the problems outlines above of less money in the economy. Retail Sales in December were much lower indicating the higher prices in the shops are starting to bite. Many business importing raw materials and products from outside of the UK will have hedged on their currency some 12-18 months ago. They will therefore have not yet been forced to raise prices as they are not buying at the new lower exchange rate. With the Pound having dropped some 10-15% since the Referendum eventually the UK as a net importer will have to pay more for the goods and services it is buying from overseas. 2017 will be the year this starts to become much more apparent.

One tool to combat Inflation is to raise interest rates but this can have its own implications. For example as interest rates rise it will help savers but put up repayments for borrowers. Credit card debt has been rising to almost pre-crisis levels prompting the Bank of England to warn it is closely monitoring this situation. If Inflation rises dramatically an interest rate hike is very likely but whilst this will help cool the inflation rise (and help Sterling strengthen) the potential negative factors on borrowers is probably not worth the benefit to savers.

All in all, some Inflation is good and welcome in an economy, but if it starts to bite too much into people’s back pockets and in turn hurts business and the wider economy this is not good. Rising Inflation can increase Unemployment, lower GDP and dent both business and consumer confidence. With the weak Pound being a key contributor to rising Inflation and the Pound likely to remain low in 2017 and beyond, rising Inflation is an issue that is going to continue to affect the public until it is understand what Brexit actually entails.

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

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

Jake Trask, currency analyst, UKForex:

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

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

Bruce Johnston, Head of International Finance, Morgan Lewis:

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

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

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

Mark Boleat, Policy Chairman, City of London Corporation:

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

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

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

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

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

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

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

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

Charles Brasted, Partner, Hogan Lovells:

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

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

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

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

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)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).

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

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

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

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

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

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

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

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

Alister Esam, CEO, eShare:

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

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

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

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

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

John Newton, CTO and Founder, Alfresco Software:

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

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

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

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

Owain Walters, CEO, Frontierpay:

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

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

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

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

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

Lynn Morrison, Head of Business Engagement, Opus Energy:

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

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

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

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

Salvador Amico, Partner, Menzies LLP:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Markus Kuger, Senior Economist, Dun & Bradstreet:

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

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

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

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

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

• 64% of businesses say the Brexit vote has negatively impacted their growth potential
• Over half (59%) believe that leaving the EU will be financially damaging to their organisation
• 19% of businesses have halted or slowed growth or expansion plans in the UK following the vote
• Nearly half (49%) of senior financial decision makers admit their business is likely to either leave the UK or reduce investment in the UK post-Brexit…
• …and more than one in ten (12%) admit this move is “highly likely”
• 19% of businesses have already seen a dip in deals with European partners and/or customers

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

Kerim Derhalli, CEO and founder, invstr:

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

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

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

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

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

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

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

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

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

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

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

Almost three in every five (57%) SME business owners say that they do not feel confident about the UK’s economic outlook for 2017, according to the Close Brothers Business Barometer. The quarterly survey questions over 900 UK SME owners and senior management across a range of sectors and regions.

Firms at the smaller end of the scale – under £500k annual turnover – were the least confident, with 64% answering ‘no’ to the question ‘are you confident about the UK’s economic outlook for 2017?’.

“Businesses owners are not taking a negative view, but they are being pragmatic about the UK’s economic prospects over the next 12 months,” said Neil Davies, CEO, Close Brothers Asset Finance. “There are still many unknowns and this uncertainty is reflected in what small business owners are telling us.

“For example, the value of Sterling is seen as a short-term issue and doesn’t create conditions for long-term investment. While activity in a number of sectors is stronger due to the weaker pound, helping to boost orders from overseas, cost pressures remain high with price increases being passed onto consumers, which may contribute to an increase in inflation down the road.”

Regional analysis

Business owners in the North East and Northwest of England were the most positive, with 56% and 54%, respectively, feeling positive about the year ahead, contrasting with the 36% of Scottish respondents.

Full list of regional responses to ‘are you confident about the UK’s economic outlook for 2017?’:

Sector results

The most enthusiastic sector was Manufacturing, which returned a positive response of 61%, followed by Engineering with 52%; Construction 49%; Transport 47%, and Print 37%.

“UK manufacturing in on a high at the moment, with recent rates of growth for production and new orders among the best seen over the past two-and-a-half years, according to the Markit/CIPS purchasing managers' index,” continued Neil.

“And this uplift in the manufacturing sector is reflected in what the survey respondents are telling us, which is that they see 2017 as a time of significant potential opportunity.”

(Source: Close Brothers Asset Finance)