finance
monthly
Personal Finance. Money. Investing.
Contribute
Newsletter
Corporate

Last week, stock markets fell globally in the wake of US President Trump's latest tariffs threats to China. Donald Trump threatened to put tariffs on an extra $200bn (£141bn) of Chinese goods, further fueling the prospects and worries of a trade war.

This week Finance Monthly set out to hear Your Thoughts on the potential for an international trade war, gaging the opinions of experts and professionals around the world.

We asked them: What do you think about this? How will this change things internationally? What might be the short-term reactions and impacts? What about the long term? How will you be affected? How will small businesses be affected? Who will benefit from what's to come? Is this a good strategy? What are the political and social repercussions?

Miles Eakers, Chief Market Analyst, Centtrip:

Investors are right to be concerned as Wall Street futures dropped by almost 2% following Trump’s threats to impose more tariffs. Any retaliation by Beijing is likely to fuel the escalating trade war with Washington, which will in turn have a negative impact on equities and increase risk aversion.

Investors are not the only ones troubled by the current situation. The world’s largest superpowers’ shift towards protectionism has global ramifications. International companies may grow less competitive due to tariffs and the cost of raw materials purchased overseas could rise by 10–20%. It’s highly possible that any further action from the US or China could put an end to the current 10-year bull market run.

Kasim Zafar, Portfolio Manager, EQ Investors:

An all-out trade war is unlikely and we believe this will be avoided in favour of mutually agreeable changes on both sides.

The world last entered trade wars on this scale early during the Great Depression. The Smoot-Hawley Tariff was entered into US law in June 1930, about 8 months after the “great crash”. There are mixed opinions on whether the tariffs added to the economic depression or only slowed down the ensuing recovery. But it is generally agreed the tariffs themselves were not the main cause of the Great Depression

Today there are few, if any, of the conditions that presaged the Great Depression. But the world is a different place today compared to the 1930’s. The most significant difference is the interconnected nature of global supply chains that have been built by companies in the post-War era. Abrupt changes along the supply chain in terms of physical supply or associated cost will have immediate impacts on the total costs of production. Companies are not charities, so if the cost of production goes up, so too will product prices on the shelf.

The impacts will differ between companies and across nations dependent upon:

The UK runs a goods deficit of over £130 billion per annum of which about 10% is with the US directly. So for the average UK consumer, the direct implication of US originated tariffs on items we buy is fairly limited in scope. The impact of tariffs on things we sell is limited also with only about 10% of UK exports heading for the US directly. The bigger risk we face is the secondary impacts from companies and countries that are impacted to a higher degree:

Carlo Alberto De Casa, Chief Analyst, ActivTrades

The trade war escalation is unsurprisingly scaring the markets. The main reason for this is actually the belief that this is only the beginning of the escalation, as China has already clarified that it will reply to US tariffs with its own. Of course, this could have many impacts. In the short term, US companies which are importing will have to pay more, while advantages for US producers will be positive, even if that’s a much smaller proportion overall. But what is scaring markets is definitely the long-term scenario, that the trade war will grow to affect more economical sectors.

This won’t only affect the big companies, it could also have a serious impact on smaller ones and retail consumers. A typical example to explain this is something like the beer can, the cost of which will rise due to the aluminum tariffs. The implications can be far wider than what you might originally think.

It is difficult to say whether this is a good strategy; we can surely affirm that this is a risky strategy as you can’t completely predict or control the effects it will have, especially in the long term. The ball is now firmly in the court of those who trade with America.

There’s little certainty that this will help drive the US economy. If this is the effect wanted by Donald Trump, then you have to consider that the tariffs which will be decided by other countries are what will drive the results. It could at best create jobs in one sector, but the additional jobs generated will likely result in a loss in other sectors. Overall, it’s hard to see this policy accomplishing its goals.

Bodhi Ganguli, Chief Economist, Dun & Bradstreet:

Rising protectionist measures from the US government are creating significant uncertainty for global businesses and adding to cross-border risks. After some optimism that the US hardline stance on tariffs was softening a bit, new announcements from the administration have re-ignited fears that the ongoing skirmishes could blow up into a full-fledged trade war, particularly between the US and China. The latest announcement came from President Trump on 22nd June when he threatened to impose new tariffs of 20% on auto imports from the EU unless the EU removed tariffs on US goods. It should be noted that, some of these EU tariffs on US exports went into effect earlier the same day; these were retaliatory tariffs in response to US tariffs already implemented on steel and aluminum (most trading partners were exempted, except the EU, Canada and Mexico). Equity prices of major European automakers dropped immediately following the announcement, highlighting the intricacies of global supply chains and their dependence on smooth trade flows between nations. In fact, all major global stock markets have seen episodes of selloffs in the past few weeks in reaction to worries that trade restrictions are rising.

The latest round of proposed US barriers to free trade have come with a pronounced inclination by the US to move away from traditional norms of multilateralism based on the WTO principles, including measures specifically directed at longtime allies like the EU and Canada. This has the potential to spill over into other areas of geopolitical risk, and pose added headwinds to the global economy. While the extent of the EU retaliation is modest so far, other countries are stepping up or planning ‘tit-for-tat’ tariffs against the US. India just hiked tariffs on a selection of US goods, while similar Canadian tariffs are scheduled to come into effect on 1st July. Of course, the biggest risk of disruption comes from the US-China spat; earlier the same week, China threatened to hit back with a combination of quantitative and qualitative measures after President Trump ordered his team to identify USD200b in Chinese imports for additional tariffs of 10% with provision for another USD200b after that if China retaliates. The global economy is still expanding; although divergences in policy are signaling desynchronization in the near term, it can still withstand some fluctuations in equity indexes. But the bigger underlying risk is that if the trade rhetoric does not die down, or if it becomes a significant headwind, stock markets will face sustained downward trends as investor confidence is impaired, eventually leading to a spillover into the real economy.

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

According to many reports, Italy’s ongoing political failure has potential to bring the Eurozone crashing down, which in turn could cause mass impact across the globe’s economy, both short term and long term.

In a recent turnoff events, both parties Five Star Movement and Lega Nord have been committed to the Italian government following a period of limbo since the March general election. Italy currently represents almost a fifth in the Eurozone economy and is feared as “too big to be saved.” Giuseppe Conte has been appointed the interim PM.

Below Finance Monthly has collected Your Thoughts in this financial debacle, summarising some points of expertise form top reputable sources across Europe.

Daniele Fraiette, Senior Economist, Dun & Bradstreet:

Italy’s new prime minister, Giuseppe Conte, will need to try and strike a balance between reassuring European partners about Italy’s permanence in the eurozone, and the 5SM’s and NL’s overt intolerance towards European Union rules on budgets and immigration.

In the weeks before the resolution of the crisis, Italian bond yields rose to levels only seen at the peak of the debt crisis in 2012, dragging yields on other peripheral euro-zone economies’ debt higher. The spread between Italy’s 10-year government bonds and Germany’s equivalent-maturity bonds also soared, passing the 330 basis point mark. The political vacuum seems now to have been filled; however, the spread remains at levels which signal significant market concerns around the country. The end of the ECB’s bond-buying is an additional factor of concern as they could prompt a significant increase in Italy’s borrowing costs.

Italy’s overall macroeconomic environment has improved remarkably over the past years: real GDP grew by 1.5% in 2017 and looks set to expand further in the 2018-19 period, the current account surplus currently stands at around 3% of GDP and its debt service cost has dropped to below 4% of GDP, down from above 6% before the introduction for the single currency. However, at 132% of GDP, Italy’s stock of public debt is huge, and the ongoing political turmoil poses a threat to the country’s stability. Indeed, should the political crisis morph into a sovereign debt crisis, debt costs would soar and debt service become unsustainable.

If Italy defaulted on its debt (which is not Dun & Bradstreet’s baseline scenario given Italy’s strong domestic investor base), the survival of the eurozone would be irreparably compromised. There is also a risk that concerns over a possible referendum on the euro, repeatedly contemplated by the 5SM and the NL but eventually scrapped from their election manifestos, could trigger a flight of deposits from Italian banks, many of which remain saddled with high levels of non-performing loans.

Although the darkest hour of Italy’s politics seems to be over, tensions between the Italian government and the EU, as well as within the government itself, are highly likely to persist; political uncertainty will likely remain elevated in the quarters ahead and the risk of early elections constantly looming.

Roberto Sparano, Globalaw:

After the longest political crisis in Italian history, a new cabinet of ministers was appointed on Saturday. Technically, the new government needs the confidence vote of both chambers of the Italian parliament, but it seems likely that the vote will go in favour of the odd alliance between the 5stars movement and the Lega.

In the closing moments of his BBC TV commentary for the 1966 FIFA World Cup Final, Kenneth Wolstenholme said "They think it's all over," but in reality it was not! This is, more or less, what is happening now. Most Italians are happy that it is over and we are back to normal, however, in realty this is only the beginning.

Local elections are scheduled for the 10th of June, and both the Lega and M5S will campaign on different and opposite barricades. Campaigns can easily turn ugly in Italy, and the first objective of the new government will be to survive these next few weeks without any major clash between the two parties.

In fact, the new local elections will be the first referendum against Europe and the Eurozone.

As Italians, we always have difficulty owning up to our responsibilities, that is the way we are, and we have become experts in the art of shifting the blame onto others. Germany has, for many reasons, been the perfect target since the end of WWII.

The notion of external control was actually one of the factors that convinced Italian lawmakers and politicians to join the European Union in the first place. This is because, if anything goes wrong, or is hard to swallow and unpopular, the blame falls on the EU as an external body- and obviously the Germans!

This may be a hopeless situation... but it is not serious, like in the 1965 movie directed by Reinhardt.

I do not think that the Eurosceptic have been strengthened from the last Italian elections. The truth is that most people are not ashamed to feel anti-EU (given that the EU has served as a punching ball and a symbolic cradle-of-all-evil over the past decades). Two non-traditional political movements are only going to cash in on this feeling.

Italy’s political climate will have a consequential effect on the Eurozone and the European Union. I am convinced that the Lega is aware that we cannot leave the EU or the Euro (I cannot speak for the M5S since I do not think they have any policy or line at all), but they are also aware that the other Euro partners cannot afford Italy’s break from the Euro or the EU.

The current anti-European feeling will undoubtedly be used as a bargaining chip for other purposes, for example, to stop immigration or, even better, to accelerate the process of moving immigrants from Italy. If Germany and the EU play this the hard way it could be fun to watch, although, as an Italian, it will be painful. On the flip side, it could be the perfect opportunity to change the EU, although, while Lega and M5S are calling for a new and stronger Europe, nobody knows (including Lega and M5S) what a “stronger Europe” really means.  My idea of a stronger Europe … I fear it is exactly the opposite of the idea of the Lega.

The situation is unpredictable, some of the measures that form part of the “Contract” between Lega and M5S could have a beneficial impact on our economy, although the Italian debt will skyrocket and in the long term, this would have a devastating effect.

The real problem will be the Italian State rating and the Italian bank rating. If the new government leads to a downgrading, the ECB will not be allowed to acquire our State bonds. Due to this, quantative easing measures will cease to help our growth, and the banks will collapse.

Italian economics are already not brilliant (that is lawyerlish for awful). We are the slowest growing European member, our private sector has never driven, and our banks … well our banks are declining.

We are already a supermarket for foreign corporations; Chinese, Indian, USA and other European companies have already acquired most of the jewels of the crown in terms of brand know-how, and excellence. Despite this, if anything goes wrong, we will become a discount or outlet!

On the other hand, our history shows that Italy always manages to survive, after all, on April 25th each year we celebrate the victory against nazi-fascism in WWII.

Giuliano Noci, Professor of Strategy and Marketing, Politecnico di Milano School of Management:

Following a week of political uncertainty in Italy, international financial markets are recovering well. Analysts expect that the announcement of a new government and the unlikelihood of fresh elections indicate that no further disruption will occur.

However, the root causes of how Italy landed in this particular political situation – where the young Five Star movement and Matteo Salvini’s League won more than half the votes in parliament – must not be ignored.

Both parties – although internationally scorned for Eurosceptic views – were able to gain the support of the Italian population, playing on both their emotions and feelings of insecurity. Both delivered well-designed storytelling campaigns via social media rather than mainstream media – a technique neglected by other parties.

The population’s insecurity has two main manifestations. Firstly, the feeling that the EU did not do enough to help Italy during the mass immigration of refugees of Syrian war. Secondly, the sense that the EU is failing Italy in important economic areas. Five Star promised a basic income for the unemployed whilst they train and upskill, and the League pledged to reduce the burden of fiscal taxation on companies by introducing a flat tax system.

So, are the parties reaching the core of Italy’s problems and setting out the right solutions? This is a question which deserves careful consideration. In my opinion, the parties were wrong to use aggressive tactics to fuel the debate about whether to remain in the EU. However, they were very right to suggest that the European Union must significantly change the rules of the game. We are seeing problems not only in Italy, but in Greece, Spain and perhaps even France in the imminent future.

These are signs that the Eurozone is not working, which is most likely because the Euro project is incomplete. Although we have a unique currency, there is no unique system for managing the risk of banks or the unbalanced, heterogenous economic systems of each country.

In the long run, a lack of reforms will create a bigger problem for the Eurogroup than Italy’s political situation. Change must come from within the EU following this situation and discussions of structural reforms in the banking sectors, as well as a safety net fund, must begin.

If no change occurs, the 2019 EU elections are likely to be just as complex as Italy’s.

Stephen Jones, Chief Investment Officer, Kames Capital:

Following Macron’s victory, the eurozone was the ‘good news’ story of 2017 as the area’s economy burst into life and global investors returned in droves. This year has seen economic momentum collapse sharply and, perhaps more than coincidentally, populist pressures have brought the fault lines back to the fore. For the moment this is an Italian issue but these pressures exist in most eurozone nations.

Equity markets have weakened on these changes but Italian worries have largely reinforced a trend already in place. Elevated ratings, and analysts offering a very rosy earnings outlook, left markets vulnerable to poor news and a variety of geo-political developments have emerged to offer that challenge; fat profits were there to be taken.

These risk markets setbacks have, however, taken the steam out of rising short rate and long yield forecasts and will probably succeed in ensuring that quantitative easing is continued in Europe for longer than might otherwise have been the case. When the dust settles, this should underpin equity markets, allowing progress to be made afresh and from safer levels; the positive earnings outlook offered by analysts have good real-world support.

However, to be clear, this supposes that Italy stops short of turning a drama into a crisis. Those of us of a certain vintage know well enough that Italian politics are not to be trusted.

Jordan Hiscott, Chief Trader, ayondo markets:

I was recently asked If I thought the current situation in Italy, in regard to potentially leaving the EU, was a black swan event. My response was no; a grey swan would be a much more suitable adjective to describe Italy in its current state. The ultimate definition of this would be a risk event that can be anticipated to a certain degree but still considered unlikely. A black swan being an event that is not anticipated in the slightest.

Italy has the third largest economy in the Eurozone and this political turmoil, of once again populist vote, threatens the unity of the bloc. But the situation is further exacerbated by the perilous state of Italian banks. Indeed, this is nothing new and they have been in the poor shape for a while, and the only surprising part to me is that the market hasn’t been paying attention to this, until now.

The culmination of the situation is we now have a perfect storm. Another type of a coalition government has been formed and the cynic in me looks at Italian politics on a historical basis and questions if this is this indeed the end of an unstable ruling government or in the colloquial sense, papering over the cracks? This is coupled with a worsening financial situation for the nation’s major banks. The move on Italian two-year treasury yields last week was nothing short of astounding, with the range and volatility more akin to a cryptocurrency than of a bond from a first world country.

The Italian stock market is now almost completely unchanged on a five-day basis, given it was down over 7% at once stage last week.  In addition, to confirm this, EURUSD has moved from a low of 1.1520 last week to 1.1750. The next move will be key, but from my perspective I’m finding it hard to feel positive, even from a mean reversion perspective, for the pair, given the length and weighted negative implications surrounding Italy at present.

April LaRusse, ‎Fixed Income Product Specialist, Insight Investment:

In contrast to the European sovereign crisis, Italy is now an idiosyncratic story. Across Europe, the previous crisis hit countries such as Spain, Greece and Portugal are all on an improving path, reaping the rewards of structural reforms implemented after the crisis. In Italy, pension reforms were certainly a positive step, but the country failed to undertake the deeper changes needed to sustainably raise potential growth.

The two key parties are proposing a range of expansionary fiscal measures, cutting both income and corporate taxes and proposing a minimum citizens income of €780 per month. Although more controversial measures, such as asking the European Central Bank (ECB) to write off up to €250bn of Italian debt, have been dropped, investors will be well aware that these were considered serious policy proposals by elements of the new government.

Debt/GDP will start to rise once again and credit rating agencies are likely to start to downgrade Italian debt, in contrast to the rest of Europe where credit ratings are improving. This leaves us cautious on Italian spreads, especially in an environment where we believe the ECB will be winding down its quantitative easing purchases.

David Jones, Chief Market Strategist, Capital.com:

There is a familiar feel to the catalyst behind the increased levels of volatility that traders and investors have seen across all markets, leaving some wondering if we are going to have another Eurozone crisis along the lines of that involving Greece from 2016. At this stage that does seem like an overly-pessimistic view, but it’s not hard to understand why safe-haven buying is the order of the day.

An oft-repeated phrase from past Eurozone crises was “kicking the can down the road”, referring to deferring that country’s debt obligations. This time around it feels as if the political can, rather than the financial one is being kicked into the long grass - and this is what is spooking markets. One of the main worries for traders is another election in a few months could result in a populist government that wants to renegotiate Italy’s debt with the EU. This is running at around 130% of the country’s GDP - the second highest level after, you guessed it, Greece.

The obviously immediate casualty was the euro. It had hit a three-year high against the US dollar as recently as February this year. Since then it’s dropped back by around 8% to its lowest level since last July. There is a double-whammy behind traders’ decisions to sell euros. Clearly any uncertainty about Italy’s debt repayments and the country's commitment to the single currency doesn’t inspire confidence - plus this year already we have seen a resurgence in popularity for the US dollar after its slide in 2017 was the worst performance for more than a decade. It can always be argued that the market reaction is overdone - but whilst Italy’s political future remains uncertain, it’s a brave trader who calls the bottom of this slide.

European stock markets have also been hit. The Italian market is the obvious biggest casualty and is now down by 13% in just one month - but the German and UK markets are also lower as investors adopt the familiar “risk-off” approach at the slightest whiff of a possible euro crisis. Many world stock markets already had some fragility when it comes to investor sentiment after the sharp falls seen in February and an ever-increasing oil price - it is difficult to see these recent losses being made back quickly.

While some sort of “dead cat bounce” can’t be ruled out in the days ahead, as long as this political can-kicking continues, then investors are likely to remain cautious about taking on risk - so it could be a summer of European-inspired volatility across all asset types.

Tertius Bonnin, Investment Analyst, EQ Investors:

This had been a slow moving car crash in which the signs have been there for all to see; populist parties were the clear winners of the March election (nearly three months ago) and the two largest parties, the Five Star Movement and the Northern League, had been negotiating a framework for co-governance since. Surprisingly, a number of market participants had expressed that they didn’t anticipate the “change” in attitude of the two famously Eurosceptic parties towards the euro. It should be noted that Italy isn’t new to political uncertainty, with Italian voters seeing 62 governments since 1946.

The Italian President’s veto of the proposed finance minister, Paolo Savona, and the subsequent increase in the probability of another election caused a kneejerk reaction in the markets on Monday. These moves spilled into the Tuesday session as the Monday was a bank holiday in the US and UK. Trading volumes on the Monday were therefore relatively thin in comparison. Tuesday saw huge spikes in key barometers of relative risk such as the Italian-German government bond spread (difference in yield) and the Italian two year bond yield. Global banking stocks, considered most sensitive to a change in economic activity, also sold off. Despite the so called PIGS (Portugal, Italy, Greece and Spain) taking significant knocks, investors in relatively safe government bonds (German bunds, UK gilts and US treasuries) benefited from a “flight to safety” whereby panicked investors moved capital into less risky assets.

There had briefly been calls by the Five Star Movement’s leader to impeach President Mattarella. Under Article 90 of the Italian constitution, parliament may demand the president to step down after securing a simple majority. Italy’s constitutional court would theoretically then decide whether or not to impeach Mr Mattarella. Given the president had not violated any Italian laws, this route appeared relatively futile. On this impasse, the populist coalition appeared to have collapsed and the market took a collective sigh of relief as the Italian President moved to appoint ex-IMF director Carlo Cottarelli to run a short-term technocratic administration until the next set of elections. It should be noted that the Five Star Movement, the Northern League and Berlusconi’s party all said they would have vetoed this.

It is likely this development fed into the Northern League’s decision to call for fresh elections at a political rally, having seen an uplift of circa 8% in opinion polling. Investors once again panicked that the risk of future elections had the potential to not only reinforce the populist parties’ positions in both parliamentary chambers, but become a de facto referendum on Italy’s euro membership. After 2017 being relatively benign year for political risk, investors had been caught asleep at the wheel in terms of pricing in uncertainty in the political sphere.

By Friday the situation had turned around once again after the Italian President provided more time for the Five Star and Northern League parties to form a government; the former designate Prime Minister Giuseppe Conte was sworn into office while the key Finance Minister role went to a seemingly more pro-European, Giovanni Tria, who headed the Economy Faculty at Rome’s Tor Vergata University. Paolo Savona, the former candidate vetoed for this position will now serve as Minister for European Affairs in a sign that the new administration’s focus will be on fiscal expansion plans and rolling back reforms, rather than investor angst around fresh elections and euro membership. This rollercoaster ride in political uncertainty has been tracked by the spike in yield of the supposedly risk-free Italian government bond.

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

Recent news reports regarding Marks & Spencer’s shop closures have left other high street retailers feeling fearful about profits.

With plans to close 100 stores by 2022, in what M&S bosses are calling a re-organization of the entire retail chain, the aim is to turn a third of its in-store sales into online sales.

This of course is another blight in the midst of a global retail infection, predominantly caused by the propagation of online buying. Below Finance Monthly hears Your Thoughts on M&S’ shop cuts and the potential consequences across the UK.

Joe Rabah, Managing Director for EMEA, RMG Networks:

With the recent announcements that M&S is said to close 100 stores and that House of Fraser could close up to half its stores, it’s no secret that the UK high-street is under pressure as a result of changing shopper behaviour and a drastically altered customer journey.

For retailers to survive and adapt they must embrace technology to create meaningful, immersive retail experiences. However, it’s not enough for retailers to invest in technology without doing so in a purposeful manner and knowing the solutions that they invest in are going to be specifically relevant to their business and their customers. It’s essential that retailers use platforms that create frictionless purchasing experiences for their customers, enabling them to increase customer engagement that is tailored to individual customer needs and habits. In doing so they will drive customer loyalty and provide consistent cross-channel experiences. Today’s solution is not tomorrow’s in retail, and technology can either allow a brand to pivot so that it can adapt quickly to changing customer expectations, or it can lock a brand into delivering stale customer experiences.

While we don’t know what the future holds, retailers must understand whether the technology they are investing in suits a clearly defined purpose and is adaptable enough to suit their future needs and their customers’ evolving customer expectations, and consider this before making any technological investment.

Julian Fisher, CEO, Jisp:

With retailers, such as Marks & Spencer, facing large declines in high street spending as consumers turn to online shopping, bricks and mortar stores must evaluate how they are interacting with customers. We are a nation of shoppers and shopkeepers, but convenience is a key factor in driving potential instore customers online where they have access to a wealth of information, deals and personalised offers. To keep customers in stores, the high street shopping experience must provide this instantaneous access to information and personalisation through handheld devices. It is essential that retailers increase investment in areas such as mobile technology to bring the shop floor into the 21st century.

The restructuring decisions that Steve Rowe is making will have the desired effect with these future-thinking closures a controlled choice with M&S in charge of its own destiny. Customer service and quality of merchandise has been a hallmark of M&S for years.

Looking ahead, it will be innovation and the ability for stores and their staff to connect and personalise their brand with new customers who are armed with devices and a world of information and content. If they don’t they may succumb to the fate of others who have been unwilling to embrace changing consumer behaviours.

Iain Wells, Investment Manager, Kames Capital:

Will M&S shares be up or down tomorrow when they announce their results? I don’t know. Expectations are certainly low with earnings forecast to be down nearly 10%. The bad weather in the first quarter, that kept shoppers at home, has been so widely discussed that it can surely provide no negative surprises. With a dividend yield of 6.3%, and a price earnings ratio 9.8x, results that are in-line with expectations could see the shares rise.

While the share may rise on the day, more important is what evidence there is that the structural pressures that have impacted M&S over many years are easing. On this I am less confident. It is not that M&S is a “bad” retailer, just that the retailing world is changing around it faster than it can adapt, and the process of adaptation is painful for shareholders.

The key issues that M&S are trying to address include:

Everyone has a view about M&S, what they are doing well, and what they are doing badly. As a national institution management have the misfortune of having to carry out their plans on a very public stage.

Terry Hunter, UK Managing Director, Astound Commerce:

The news of the M&S store closures is yet another dagger in the heart of the British high-street. The retailer plans to move a third of its sales online, and intends to instead have fewer, larger clothing and homeware stores in better locations. If the company is going to recover from its recent sales slump, it is imperative that it has an exceptional online offering. It will now be competing more directly than ever with the likes of Amazon and Asos.

Online retailers like Asos take advantage of efficient and nimble business models by avoiding the costly overheads associated with running bricks-and-mortar stores and as a result, they can afford to invest a great deal in offering websites which give the best possible user experience. Although M&S is cutting back on some of these overheads, it is not as experienced or effective in the ecommerce arena as the pureplay online retailers. M&S needs to make sure its in-store offering works in harmony with its online strategy. The retailer struggled over the Christmas period last year – basic logistical errors caused a real headache as next day delivery targets were missed – a type of error you don’t see the likes of Amazon making. A truly omnichannel approach is the only way that this British retailer is going to recover, let alone flourish.

One factor that is working against M&S is that its customer base has an ageing demographic. The company has been making efforts for some time to attract a younger shopper and an improved online offering could potentially aid this. A younger tech-savvy shopper is more likely to make purchases online rather than instore. One of the key battles for M&S will be ensuring that its predominantly over-50 female shopper continues to visit the new stores, whilst also becoming more active in buying products from its website. It is a difficult road ahead.

Paul Fennemore, Customer Experience Consultant, Sitecore:

M&S faces a similar challenge to many other retailers – in trying to find out exactly who its target market is, and what they want, ahead of them wanting it. Evolving a customer experience strategy on the basis of anticipating needs in this way will require a very sophisticated, multi-channel, cross platform customer experience strategy in place, each of which must feed the other to create a total experience that is worth more than the sum of its parts.

One way it could go about reinventing itself online is to go beyond personalisation – which all brands claim to be able to do – and move to individualisation. This will deliver content to its customers based on specific data points. This will help set it apart from the other online retailers, and help it provide its customers with an unexpected, satisfying experience which will keep them coming back.

By creating a robust individualisation strategy, focusing on customers as individuals, rather than using the more traditional broad personas, M&S will be able to attract a younger, mobile-first demographic, who value individual interactions with brands. The challenge here will be to ensure that experience is consistent across all channels, including mobile, online, social media, and in-store. Integration of its systems will be key for M&S going forward, otherwise customer data will be siloed, meaning they won’t be able to track a customer’s journey efficiently. This will ultimately lead to a worse customer experience, as it won’t be consistent.

Ben Holmes, Head of Display, Samsung UK:

Yet again, we’re seeing more boarded up shop fronts on the British High Street with M&S recently announcing a series of store closures. We understand the predicament M&S is in as it sets about ‘modernising’ its business to ‘meet the changing needs of customers;’ but at the same time, we do believe that bricks and mortar establishments can be part of the modernisation effort rather than being the sacrificial lamb to more investment in online. When every retailer is battling for the same pound spent, businesses definitely need to be more innovative in how they sell to their shoppers. The old rules no longer apply when it comes to in-store retailing in an age where shoppers expect personalisation, digital connectivity and high impact experiences. We’d encourage retailers to experiment with digital technologies like video walls and touchscreen kiosks because these technologies have been proven to drive engagement and sales. Physical stores are definitely not secondary to online retail estate because there is a real opportunity for companies to transform their stores into experiential destinations – think brandship not just flagship. Until retailers start delivering genuine, digital experiences, we can unfortunately expect more casualties.

Adam Powers, Chief Experience Officer, Tribal Worldwide London:

This latest announcement is yet another indicator of a malaise that’s been hanging over UK retail stalwarts for the past few years. The inexorable growth of online commerce means that a strategic rethink must be undertaken for businesses that want to successfully trade on the UK high street. Actually, this is a global challenge, but the UK is one of the most advanced ecommerce markets in the world and so we are seeing the outcomes here earlier. Like Mothercare, M&S is clearly trapped in the middle of a market where they are being squeezed at both ends. Cheaper or more fleet-of-foot competitors are doing product innovation around food (Aldi/Lidl) that was once an M&S sweet spot. Away from food, key competitors have high performing home delivery infrastructure like Next or ASOS that leave M&S looking lumbering and out of touch with modern customer expectations. Additionally, M&S are getting squeezed from the top as style needs for their target demographics are increasingly met by internet optimised clothing competitors. The wrapper around all of this is really customer experience - online and instore, this is the modern retail battleground. From the outside looking in, it appears that nobody at M&S is looking at customer experience holistically, with a mandate to drive radical, customer-centric transformation and the initiatives underway, such as store closing, look piecemeal. What’s particularly worrying about M&S delivering a turnaround, is that the way things are emerging must be highly unsettling for the workforce, the very people who are at the frontline of delivering customer experience.

John Taylor, Co-CEO, Duologi:

The internet has made it easier than ever before for customers to compare prices and shop around online, without ever having to leave the comfort of their homes. This subsequent decrease in footfall to the high street has led to a number of high-street brands opting to close stores where footfall has dwindled to save on overheads, with M&S being just the latest example of this.

However, this does not mean that the high street is dying – far from it. Rather, we’re seeing a shift in the retail landscape, wherein the retailers set to thrive will be the more flexible, agile brands which can offer customers a choice in how they shop and pay for products.

To accomplish this, savvy smaller retailers are taking the time to optimise their online presence to sit alongside their bricks-and-mortar offering, engaging customers who no longer shop with a brand due to ongoing store closures.

This flexibility also extends to the payment process itself. With consumer confidence currently low, flexible finance options such interest free credit, 0% finance and buy-now-pay-later can support shoppers at the time of purchase – particularly for big-ticket items – which can both engender consumer loyalty and increase average basket values.

Charles Brook, Partner, Poppleton & Appleby:

We should be careful not to jump to conclusions. There is undoubtedly an acceleration of change in the retail market with some large towns experiencing retail depletion more than others. Statistics released this week in Yorkshire put Doncaster, Barnsley and Huddersfield towards the top of those hit hardest by a combined net loss of more than 1,000 retail outlets in the past 12 months.

Marks & Spencer is shifting the focus of its in-store offering away from homewares and clothing to place emphasis on and serve its online offering in a more contemporary manner. This is a sensible response to the evolved way in which even its traditionally conservative-minded customers now shop and, having such a significant leasehold estate, and it needs to plan well ahead. I think it highly unlikely that M&S would try to foist a Company Voluntary Arrangement on its landlords.

Perhaps this is a good time to deliver seemingly bad news. The M&S Board may be gambling on the market and its major shareholders (if not the public at large) recognising that whatever issues have hit other big names, M&S is reading the trading conditions and charting its future trading strategy with typical caution.

Rick Smith, Director, Forbes Burton:

Retail is going through a transition, and a transition that M&S should have seen coming, especially with the likes of Ebay / Amazon etc dominating the way people shop, but unfortunately for all those concerned (towns, cities, the high street, communities, shoppers, staff) they didn’t. High street shopping is now all about the experience.

However, it’s not just the blue-chip retailers fault, it’s a collective from councils, property owners and communities. This should have been recognised and adaptive investment should have been put in place a long time ago. The problem we have now is that it’s all knee jerk and I’m not convinced they are going about it the right way. Closed high street shops is simply demoralising for the community and once the reality of it sets in it’s quite scary when you start thinking more about it.

M&S haven’t kept up with the times and they need to look at online sales especially for the struggling clothes and homeware sections. While they’ve been able to do well compared to their competition by attracting females to their clothing range, they have failed to find their proper place in the market on this side of the business and need to get this totally right. Also, many of the stores need modernising which is difficult when profits are dropping and there’s no money for investment.

Their food range is nice and appeals to a small, specialised section of the population. However, competitors have caught up with their food offerings and often for much less with most now doing a ‘finest’ or similar range. A small percentage do also believe the bad press around packaged meals, and this combined with the offerings from the competitors has had a knock-on effect because there has been no differentiator in terms of quality. M&S food is of very good quality, but it is now evident with these closures that they do not have the resources to convince the public otherwise.

Emma Thompson, Head of Strategy, Visualsoft:

E-retail is booming at the moment, with consumers currently spending a staggering £1.2 billion a week online. As such, high street retailers need to make the most of this opportunity to ensure they have the best chance of success. Those who fail to do so can expect to fall behind more digital-savvy competitors, as we have seen with the likes of Toys ‘R’ Us and Maplin.

While it still remains to be seen whether Marks and Spencer’s store closures will help boost performance, it is heading in the right direction by using this restructure to support the growth of its website. This forward-thinking attitude could see the retailer maximising its growth potential, as the majority of the UK’s top retailers that neglect their online offering risk stunting their growth as a result.

For Marks and Spencer to effectively focus its efforts, it needs to not only improve its website’s user experience, but also utilise a variety of online channels to boost revenue. Social media in particular should be a priority, given that a growing proportion of e-retail sales are driven through the likes of Instagram and Facebook. If the retail giant prioritises these areas, it can expect advantageous results to follow.

Leigh Moody, UK Managing Director at SOTI:

The decision to close 100 stores over the next four years is a bold decision from one of the UK’s leading retailers and highlights the shift in focus from high-street to online in order to keep up with evolving consumer trends.

In response to this change and to support its online growth plans, M&S will need to consider how they integrate their mobility management strategy across their entire on and offline operation to ensure they are streamlined, data is protected and customer demands are met.

As M&S becomes more digitally enabled across all channels including mobile and social, mobility will be key in influencing the shopping experience, touching every part of the value chain which in turn, will lead to further opportunities for cost savings and buying efficiencies.

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

According to recent reports, the UK economy is set to grow at a slower pace than any other major advanced or emerging nation in 2018, according to the OECD.

The OECD says UK growth is forecast at 1.3% in 2018 amid a strengthening global recovery. Earlier figures presented a 1.2% growth; however this is still the weakest of the G20.

Consequently, Finance Monthly has asked several experts, market analysts and economists to comment on the news, in this week’s Your Thoughts.

Angus Dent, CEO, ArchOver:

Despite the Office for National Statistics’ cautious optimism about UK productivity in late 2017, the Office for Budget Responsibility (OBR) has refused to upgrade its productivity outlook. It’s just another chapter in a now-familiar story – the Government just can’t jolt the economy out of its lethargy.

If we can’t get out of this rut, we won’t stand much chance of making a smooth economic transition out of the EU next year – we won’t have the leeway to absorb any unexpected shocks. Despite that, Philip Hammond used today’s Spring Statement speech to essentially sit on his laurels and avoid taking any new decisive action.

While the Chancellor rests easy, British business must get to work. Given that the OBR continues to find the government’s position on SME productivity ineffectual, business owners need to take matters into their own hands and look to fund bolder new business projects and models.

They should use alternative financing options to fund new services, hire more staff and improve working conditions. You need money to make money, so UK companies must invest in driving productivity. If the Government won’t do it, entrepreneurs must take the initiative, using tailored financing to secure the tools they need to boost productivity.

Jonathan Watson, Chief Market Analyst, Foreign Currency Direct:

Whilst being rather gloomy in recent forecasts, the OECD (Organisation for Economic Co-operation and Development) are right to single out the UK for a slower pace of growth. The uncertainty created by the Brexit has seen reduced confidence in the UK and held back growth.

Business needs certainty and whatever you think the longer-term outcomes may or may not be, for now there is some mystery in what lies ahead from Brexit for the UK. Since we still don’t know what Brexit will ultimately mean, businesses and consumers cannot easily make long-term decisions. That doesn’t mean they have stopped making any decisions, life is carrying on, just at perhaps a slower pace than would have been before the vote, or upon a Remain vote.

The global economy is, as the OECD states performing better than expected, which is helping support the UK through any difficult period. This doesn’t take away the Brexit disadvantage which is currently hampering not only the longer-term overall economic outlook, but overseas investment in the UK, domestic UK business investment and consumer spending, plus that closely watched barometer of economic strength, GDP or economic growth.

Chris McClellan, CEO, RAM Tracking:

What readers of this article need to ask themselves is if they’re a follower or a pioneer? Yes, we understand that it’s being reported that the UK economy is growing at a slower pace, but what will separate those businesses that struggle from those that thrive, is their mind-set and work ethic.

I firmly believe that growth for a lot of businesses can and will soar this year by making smart, well-informed decisions. Assess not only your immediate but future risks and have well-thought out strategies to mitigate these. Consumers are always going to buy whether it be your product/service or another’s. What’s going to make you stand out is clever thinking - how can you add more value? How can you export or trade with countries in a stronger climate? This flexible approach will not only give you competitive advantage but will widen your business horizons further than just UK shores.

The introduction of trusted sites such as TrustPilot, Facebook and Google (to name a few) together with ‘consumer-power’ should not be overlooked. By focusing on exceeding and delighting your customer’s expectations will result in repeat purchases as well as positive reviews, the power of your business growth lays firmly in the hands of your customers.

At RAM Tracking, we’re increasingly analysing our data and utilising innovative technology to delight our customers and highlight improvements that need to be made quickly. Investment into platforms like Salesforce have helped us become more data focused in a bid to work smarter to save costs but still have the ability to reinvest even when growth is reported to slow down.

If you have thoughts on this please feel free to comment below and let us know Your Thoughts.

Optimism is high among SMEs across both Europe and the US, but is said optimism enough to warrant actual business expansion?

With investment in tech, especially AI, can SMEs afford to expand into new markets and regions? With tax cuts in the US, the new budget, incentives in the UK and confidence in markets all together, is optimism on the rise? Is this a year of your business expansion? What are your thoughts on the current climate, risks and opportunities?

In this week’s Your Thoughts Finance Monthly has heard from a number of top experts and businesses on their opinions and plans for expansion in 2018.

Rick Smith, Managing Director, Forbes Burton:

These days, with so many alternative funding streams available to entrepreneurs and established companies alike, it is easier than ever to get funding. However, this comes with an immediate danger and risk. How companies use this money is often the reason they run into trouble.

The tired adage of not putting all one’s eggs into one basket comes to mind, but it remains true. Diversifying, rather than concentrating on singular vision, is essential.

One thing we always advise companies to do is to think about having physical assets. Being labour-intensive and hiring equipment in the construction industry for example will only serve your growth so far. The lack of bricks and mortar or equipment assets can hit companies hard if things start to go wrong.

With so much uncertainty about, including Brexit, companies need to be mindful in order to be able to recover if things deviate.

Consider expansion of business premises or the purchase of a large, well priced piece of equipment. Ring-fencing that kind of value is wise and can be leveraged more easily. The danger in not looking for this kind of self-preservation is having to borrow more when you fall into a hole. By then it could well be too late. Growth is fantastic, but only when properly managed.”

Lewis Miller, Chief Financial Officer, Frank Recruitment Group:

When it comes to expanding your business in 2018, it isn’t a question of can you can afford to, it’s a question of can you afford not to?

Currently, the availability of cheap debt is at an all-time high; technology advancements are making it easier to invest in new capabilities and new markets, and trading internationally is becoming easier.

For these same reasons, competition is growing and getting tougher. If you are confident in your products and your capabilities, there is no time like the present to bite the bullet and invest in your expansion. If you don’t, it could be a decision you come to regret.

We are already seeing interest rates starting to rise and with strong wage rate growth being reported, this appears to be a trend set to continue. This will eventually place pressure on the economy. It’s impossible to predict the extent of which but I certainly wouldn’t rule out a recession over the next few years.

Expanding now, whilst the market dynamics are supportive will not only open up new opportunities, but the diversification will help protect your business in the event of downturn.

Having access to different markets can also give you a competitive edge with your customers as well as help attract new customers who are looking for a partner who can serve them across a wider array of offerings or geographies.

If you are looking at expanding this year into new markets, whether it be geographically or product, I would offer this one piece of advice – don’t assume that the secret sauce that has made you successful in your current market is the exact same secret sauce to enable you to succeed in new markets. You need to do your homework thoroughly across all key areas, such as; your value proposition; cultural differences in how people buy in the target market; laws and regulations; employing staff; and so on.

In SME’s, often we rely on our existing staff to drive the expansion agenda. Sometimes hiring or partnering with someone that has been there and done it in the market you are looking at, whilst costly, can be the difference in you getting it right the first time and really accelerating your growth.

Adam Schallamach, SME Growth Consultant, Business Doctors:

For a small or medium sized business, the timing of any decision to invest or expand is crucial to ensuring its continued success and, typically, owners will look at both internal and external factors before coming to any conclusions.

The external environment is confusing at the moment. For every article you find stating that business confidence is on the up, you can also find an article talking about how difficult conditions are. But, if you look through the noise, there are certain key themes at the macro level.

Despite it being 18 months since the referendum and nearly 12 months since Article 50 was triggered, we are no clearer about what the future relationship between the UK and Europe will look like. Obviously, if you are a business that relies on European interaction, this uncertainty could be crippling. But, even if you are not, the broader impacts of Brexit on the UK economy and its competitiveness, which could be positive or negative, will have an impact.

Interest rates are another key issue. As a result of inflationary pressures, the Bank of England is giving strong signals that there will be further interest rate hikes this year. These will impact the cost of borrowing and may raise pressures on finances going forward. However, interest rate rises can also have a positive impact on exchange rates altering costs for import/export businesses and supply chains.

As a consequence of Brexit, the Government is looking at how it realigns business related policies to refocus the economy. A major part of this is the Industrial Strategy which is intended to set out the broad vision going forward. Allied to this are the funding schemes/tax credits which are available and will continue to be available to assist business investment/expansion but it is clear that Government will increasingly use this tools to focus on particular areas rather than general business support.

However, whether the broader economic environment is up, down or sideways, businesses still succeed and prosper. And although there will always be exceptions, I would argue that for most small and medium businesses, the key is having a clear direction and strategy.

If a business owner knows what they want to get out of their business and has a clear alignment between that and their business objectives, that will drive what they need to do and when they need to do it. Worrying about external factors which are out of their control and even experts cannot agree on, is frankly a waste of time. So my advice is, if you do nothing else, take the time to revisit and refresh your business plan if you have one, or invest in pulling one together.

Mike Hoyle, Finance Director, Sellick Partnership:

We recognised early on that our financial year to February 2018 was going to be a big year for growth - not just for Sellick Partnership but for our clients and the wider economy.

Our temporary contractor numbers have grown steadily and the number of permanent placement has increased significantly on the year before. This reflects employers’ confidence in the market, indicating that they can afford to keep their new hires long-term.

Demand for recruitment services has increased across all sectors - including finance - and as a result, this year we are focusing on organically growing our professional services offering. We will strengthen our teams by recruiting more specialist consultants to make sure we reach our ambitious financial and operational targets for the next financial year - including surpassing £2m turnover for permanent placements.

These signs are all positive and optimism is certainly on the rise, but there still remains some uncertainty for business owners and employees alike. Although all things Brexit are definitely picking up pace, the remaining uncertainty creates risk, as businesses may struggle to properly plan for the future. With that in mind, it’s imperative that Theresa May pushes on with developments if we want a shot at further economic growth post-Brexit.

Mark O'Connell, CEO, OCO Global:

Market volatility in global equity markets in recent weeks might make you think 2018 has gotten off to a shaky start. But looking beyond this at the wider global economy, 2018 is shaping up to be a promising year for SMEs and could be the year for expansion. Last year, only just over one in ten UK SMEs exported, with businesses missing out on significant opportunities in markets outside of the UK.

2017 saw the return of a booming Europe. Key markets such as Germany, France, Italy and Spain are growing at the fastest pace in a decade and have not yet been fully explored. The German market in particular is a key prize – friendly, accessible and well-disposed to quality and strong service support. The weakness of Sterling also makes UK exporters more competitive than ever right now.

Uncertainty surrounding Brexit arrangements is also prompting many to look further afield for opportunities for growth. In the last year we have seen a significant increase in companies exploring North America. New tax friendly policies in the US have boosted small-business optimism, government-related cost pressures continue to ease and consumer spending remains strong. The US presents a supportive business climate for small firms and a wealth of opportunities.

The benefits of exporting are manifold; diversifying an export portfolio can increase both sales and business stability. A wider base of customers and distributors results in a more resilient business that is able to weather downturns in one or more markets, or offset quieter seasonal periods in one part of the world. Additionally, exporting exposes a business to new ideas and supports innovation. And one thing which UK SMEs are regularly chided for is ‘lack of ambition’: the fact is that more internationally diverse businesses achieve higher exit valuations, so don’t just fly the flag for the country- fly it for yourself.

Adrian O’Connor, Founding Director, Global Accounting Network:

There is no doubt that organisations of every size are increasingly taking a global approach to future expansion plans. It may sound like a cliché, but rapid technological advancements mean that geographic borders are not the barrier they once were - the world is getting smaller. Meanwhile, future uncertainty caused by myriad external factors, not least Brexit, is encouraging smart business leaders to explore opportunities outside of the UK. It’s no wonder that a growing number of organisations are looking to capitalise on favourable market conditions elsewhere, or simply hedge their bets against unpredictable local economies.

Recent client demand, and subsequent recruitment activity, reflects this growing thirst for international growth. The organisations we work with are increasingly seeking senior finance professionals who have experience within a global operation, are familiar with specific international tax structures or who have a solid background in analysing risk associated with global expansion strategies. Unsurprisingly, we have also witnessed job roles, and associated remits, shift in recent years to fit within business structures which are conducive to international operations.

While due diligence associated with overseas expansion expands far beyond the remit of finance teams alone, FP&A specialists who can provide detailed analysis of the strengths and opportunities of target markets - and management accountants who can advise on compensation packages based on local standards and customs - are highly sought after.

This is a strategy we have applied to our own growth plans and Global Accounting Network is expanding into the US this year. The decision was based on a similar market with a shared language and a business-friendly tax regime. International expansion is no longer a pipe-dream for the majority of business: it’s a logical next step for companies which have their ear to the ground and are looking to take their business to the next level.

Dany Rastelli, Global Marketing and Communications Manager, Elements Global Services:

2018 is the year for expansion. 2017 saw stronger growth than many had predicted and I think businesses are starting to look at their expansion timelines with greater optimism. Although companies will continue to proceed with caution in light of current geo-political events, they will no doubt look at international expansion with a view to offsetting negative growth in one market by starting to operate successfully in another.

With regards to Elements Global Services, we are certainly optimistic about what this year will hold for the company. As a global organisation we know our strengths, and are ready to put them to good use to achieve our short, medium and long term goals – no matter how ambitious they might seem. One example of our expansion plans this year, is our ambition to double our head count in the next twelve months across all offices.

It is clear that investing in tech, and more specifically AI, will be essential to a small business’ survival later down the line. In my opinion, this is a short-term (albeit costly) investment for a long-term gain that will give small businesses the competitive advantage. Companies are investing in their futures and it is widely acknowledged within the industry that automation and digitalisation will be the dominant route to market going forward. This influx of tech adoption now should see lower overheads further down the line, allowing for companies to become more profitable across a multitude of markets.

With the latest tax cuts in the US, incentives in the UK and a general confidence in the markets, I think a mood of cautious optimism has pervaded the financial markets in the last 18 months and the global economy has witnessed a positive trend developing. As a result, companies have started to look at expansion with more confidence than before. Although it is indisputable that the current economic climate is volatile, I personally believe that in every risk lies an opportunity. In 2017 the global economy far surpassed expectation and I predict that 2018 will continue this trend and allow businesses to expand and triumph in the face of both global and local adversities.

Chris McClellan, CEO, RAM Tracking:

Despite the ongoing uncertainty around Brexit, and the value of sterling, UK SMEs are still operating in a dynamic and exciting business environment where expansion is a viable option. A recent survey by American Express found that 41% of UK SMEs cite their leveraging of the particular advantages they enjoy as an SME – such as adaptability, innovation and strong customer relationships – as one of their top three strategies for fuelling revenue growth in 2018. And this optimism doesn’t cease when crossing the pond with the recent US National Federation of Independent Business survey reporting one in five SMEs looking to both hire and expand during 2018.

Back in the UK, the American Express survey also states that the majority of those surveyed cite economic uncertainty the most significant threat they face – which has switched from political uncertainty within the same poll just a year earlier. While concerns are ever-present though, this is matched with increased optimism about the opportunities that are out there to trade and form strategic alliances, both in the UK and overseas.

Indeed, developing a specific overseas strategy is a clear advantage for SMEs particularly as it provides a safety net/ pool of new customers and suppliers to fall back upon, as the UK’s departure from the EU draws ever nearer and the weaker pound becomes more attractive for overseas buyers. According to KPMG, almost half of UK exports were destined for the EU in 2017, which demonstrates the dire need to start looking at forging wider global relationships now as a safeguard.

Naturally, global expansion requires a number of obligations around tax and culture to consider but the typical make up of a successful small business – which incorporates focus, strong working/ customer relationships and consistency – helps provide the ‘front’ required to successfully move beyond our national barriers. Financing is of course, an ever-present issue – and barrier – for some, but again, by utilising the agility and innovative nature of an offering and in-house team, investment can become much easier to source. For those not quite at the stage where they can do this, perhaps 2018 is better used looking at the business and how they can make it ‘overseas expansion ready’ in order to make 2019 or 20 the year when they truly elevate.

Indicating business efficiencies is a key element of driving success within existing efforts but this also helps in demonstrating the potential for an SME to move to the next level where expansion (in the UK or indeed, overseas, is concerned). This comes down to measures like ensuring that supplier relationships are properly managed in terms of spend and consolidating requirements down to the fewest suppliers possible. However, internal measures that drill down the day-to-day costs are always needed, an example of such measures is the use of vehicle tracking devices for employees out on the road, as these are very effective and also demonstrate that employee safety and well-being is proactively being monitored.

While nothing in life that is worth getting comes easily, it does seem that the current business landscape is 'expansion-ready' where SMEs are concerned – indeed, the expected uncertainty caused by the current Brexit negotiations actually represents an opportunity for SMEs to forge new relationships that are not as dependent on exiting the EU in terms of tariffs and taxation. So, in conclusion, go forth and conquer!

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

As of this month, the revised second Payment Services Directive (PSD2) is in force and set to cause significant disruption within the European payments & banking sector. The first and foremost disruption is the possibility of Open Banking, as the legislation now allows a level playing field for PSPs to operate.

From data and cyberattacks to market competition, there are lots of opportunities and challenges to confront, but are Your Thoughts on the prospects of Open Banking? Below Finance Monthly hears from a record number of sources on the introduction of PSD2, each with a different take.

James McMorrow, Head of Payment Strategy, Global Transaction Banking, Lloyds Banking Group:

It is still very early days. Open Banking is now live and we are working with regulated third parties. What’s immediately clear already, from a client perspective, it has laid the groundwork for a range of new financial services solutions for consumers and businesses.

Saying this, it’s still worth noting that we’re still very much at the beginning of the journey in the UK and Europe. PSD2 is now live, but new payment and account types will be added to the API channels throughout 2018 and 2019 to meet regulatory requirements.

However, what these solutions will look like in practice, who will be providing them and the rate at which businesses and consumers will adopt them is not yet clear. An important consideration for the entire financial services industry will be finding the right balance between ensuring customer security and developing an exceptional user experience.

Winston Bond, Technical Director EMEA, Arxan Technologies:

All banks are now required to share their Application Programming Interfaces, or APIs, to third-party applications, however, many have still not been advised how to do this securely.

The principal weakness in sharing APIs is the simple authentication that is widely used by most API Management Solutions to confirm that the client app on a device is genuine and, has been authorised to utilise server assets. If a cybercriminal breaks through an app’s security and decompiles its code, they could potentially root out the encryption keys. Attackers can then trick the system into recognising them as a legitimate client, giving them access to anything the API is authorised to connect with.

To prevent attackers from exploiting an API in this way, banks will need to ensure they cannot access the cryptographic keys it uses to authenticate itself, by using code obfuscation, for example.

As we’ve said before, the onus really is going to be on the banks. The PSD2 regulation makes it clear that they are responsible for the ownership, safety and confidentiality of their customers’ account data. Consequently, banks are going to have to do everything they can to maintain their well-founded reputation as leaders in security, including creating a united approach to ‘open banking’ as they work on their own solutions throughout 2018.

Gunnar Nordseth, CEO, Signicat:

By providing their users with a safe way to store identities and offering access to these through an API, banks can leverage the trust they have fought to establish and defend.

Unlike physical identity credentials, such as passports and driving licenses, a bank identity API can expose only the required attributes—a business can ask if someone is who they say they are, where their country of residence is, or prove that they are over 18 without needing access to additional irrelevant information. A focus on identity will offer banks an opportunity where previously there was only challenges.

Ryan Wilk, VP, NuData Security:

While open banking will allow a myriad of services for customers to take advantage of, it will also open them up to third-party vendors and therein lies the challenge. Securing the supply chain so that personal information is protected from attacks will take a herculean effort and one that has not been entirely successful up to this point.

The new European directive mandates the use of strong customer authentication (SCA) – two or more identification elements – to increase customer protection. One of the three pillars of SCA is biometrics technology. Physical biometrics provide a convenient authentication layer for customers, and passive biometrics help institutions detect and avoid screen scraping from third-party providers who try to access customer accounts through the bank interface. With a multi-layered approach that includes passive biometrics financial institutions can block screen scraping and provide a higher level of safety to open banking.

Daniel Hegarty, CEO and Founder, Habito:

Open Banking will be a fantastic innovation for consumers. However, with one in five people in the UK classifying themselves as financially illiterate, it also presents a pressing need to be implemented safely and securely. The consent-based data sharing that Open Banking will bring, will enable many to potentially save thousands per year, for example by simply switching from their standard variable rate mortgage, to a fixed rate product. However correct data management is imperative - low levels of financial literacy, mixed with a new ease of financial information sharing, could put some at risk. Financial services firms need to continue to invest in technology and prioritise safe Open Banking implementation, for the benefit of UK consumers."

Alex Bray, asst. VP of Consumer Banking, Genpact:

While this is a potential goldmine for fintechs which want to revolutionise the banking experience for customers, it poses significant challenges for banks which risk becoming a back-office utilities. In fact, a possible outcome is that banks could end up surrendering their direct customer relationships, becoming a commoditised payment back-ends as new aggregators or payment initiators swoop in. For banks to take advantage of PSD2, they will need to find a balance between openness, privacy and data protection. At the same time, they will need to improve their analytics so they and their customers can make the most of the huge amounts of new data that will become available.

Graham Lloyd, Industry Principal of Financial Services, Pegasystems:

As with all regulation, the unstated issue is what’s coming next in the pipeline, be it PSD3 or some other impactful directive. Beyond scenario planning, responding to the unexpected is all about the ability to change processes and technology rapidly and with minimal disruption. They must regularly redefine what it means to ‘promise’ and ‘deliver’, not just generating rich insights, but selecting the right recommendation and next best action within time and budget constraints. Also, operating models and IT should be quickly and painlessly changeable from a single point.

Jeremy Light, Head of Payment Services, Accenture:

Under the new regulations, banks will have to release customers’ financial data, with their consent by a few clicks online or through a mobile app. We found two thirds of consumers were reluctant to share their details with third party providers, and overwhelmingly trust their bank with financial information. Until new entrants to the financial services sector can earn consumers’ trust, banks can draw on their extensive heritage to secure an important early advantage. But, if banks move too slowly to adapt to the open banking landscape, they risk becoming back-end, transactional players, while retailers and third parties become the face of faster and frictionless payments

Victor Trokoudes, CEO and Co-Founder, Plum:

We anticipate a host of new providers coming to the fore in the wake of Open Banking. But these will be different to traditional banks, acting more like advisors to people’s financial life (from saving, to investing, to finding the right financial products). Users will still use their current provider to transact, but will manage everything else via these new wave of “added value” providers that are focussed on offering services that make their users better off.

Jessica Leitch, Principal, Adaptive Lab:

The biggest problem is that banks will start to lose access to their customers’ data. If you’re transacting purely through say Paypal or any other P2P payment platforms the banks not only can’t see what your spending your money on, they also can’t take advantage of overdraft, FX or other kinds of fees associated with financial transactions.  Losing this also takes away the data the banks use to feed their risk models.  Basically, it has the potential to disrupt the banks current prime account model as well as their payments value chain.

Lorenzo Pellegrino, CEO, Paysafe:

In this new world, fintechs no longer have to work within the limitations of legacy bank infrastructure. Instead, they can grasp the opportunity to refine their user experience, making it even more seamless and frictionless. More to the point, open banking — as well as the faster payments rollout in the UK and EU — may well result in card volumes shifting to online bank transfers, creating an environment ripe for disruption.

We also believe that services that allow users to send funds from their bank account in real time will benefit from these developments. And this holds especially true in Austria and Germany, where over 80% of all transactions are still cash- based.

But it’s not all roses. The price of payments is also intensely competitive. For businesses that have already achieved scale, large volume at low margin makes economic sense. For the rest, there will be a need to differentiate based on the ability to keep transactions as seamless and frictionless as possible.

Christian Ball, Head of Retail Banking, GFT:

The APIs of tomorrow will give banks a means to let customers do complex things quicker, such as apply for mortgages at the swipe of a mobile touch screen.

Our latest research confirms customers are excited by the prospect of more personal services, showing that 67% of them would be more likely to take out a loan with a bank if it came with practical advice unique to them. But to achieve the level of innovation required to stay relevant in an Open Banking world, banks need to be able get their customer data in order. Specifically, they need to get better at processing and segmenting customer data, which can be done through greater understanding of transaction metadata. This data can be described as the holy grail to unlocking the customer experience, and being able to use it properly will enable banks to understand what services customers actually want, and subsequently help to uncover new revenue opportunities.

Alastair Winsey, Regional Director EMEA, Thousand Eyes:

When a business’ network becomes unruly and far-reaching, locating the true origin of a problem, degradation issue or even a DDoS attack can take the best part of a day. This is due to the number of third-party providers that cloud computing ultimately relies upon to create an application ecosystem enabling a wide range of services ranging from payments to text and voice notifications. By providing true instant visibility of a complete network path including corporate networks, the internet and connected APIs and Cloud Provider apps, companies can shrink this time from days to mere hours, enabling them to quickly remedy any problems. The dawn of Open Banking in 2018 will make network health a vital component to business success in the finance industry.

Alexander Beattie, Enterprise Director UK & Ireland, Anomali:

From an overarching cyber security perspective, a major concern is the fast-growing number of new organisations who are now authorised to handle sensitive information. Whereas this data was previously held in the hands of a few well-known and visible organisations, under pressure to adhere to regulatory standards and security measures, now the same data will be shared with numerous other, relatively unknown, untested organisations.

This may create a greater chance for fraudulent activity, as Threat Actors explore the weak links in this new enlarged target-rich environment. Undoubtedly, this plethora of new market entrants will be held accountable and will have to adhere to regulation, to safeguard the security of the data they handle. To ensure this they will be investing heavily in the state-of-the-art cyber security systems and processes to try and stay ahead of the curve.

Nick Caley, VP financial services and regulatory, ForgeRock:

PSD2 and Open Banking will democratise the payment services industry by creating more choice for consumers, in turn opening up possibilities for innovation and changing the relationship between consumers and payment service providers for good.

While a lot of the discussion has been focused on how this change will put more pressure on the established banks from tech-savvy fintechs, it is often overlooked that retail banks do have considerable advantages over new players entering the market. For instance, the big retail banks have had decades to build trust with their customers, and they have a strong track record of protecting customer data. This foundation of trust is something that emerging fintechs will need to try and replicate if they are to succeed in the long-term.

Vanita Pandey, Vice President Product Marketing, ThreatMetrix:

Any new payments schemes governing payment initiation service providers (or PISPs) will need to be carefully crafted. Existing payment infrastructures are based on years of heavy investment, with specific operating regulations, settlement protocols, liability measures and pricing structures mutually agreed upon by innumerable parties. Many of the risks associated with a wholesale migration to a new schema can be mitigated by the use of risk-based authentication that preserves the balance between security and convenience.

With all the investment retailers have made in backend processes for one-click payments, it is critical that final directives include provisions for risk-based payments, so retailers can maintain friction-free customer experiences while securing all one-off and recurring transactions.

Camilla Sunner, Managing Director for the Global Partnership Business Unit, Valitor:

When you think about the number of options we now have to purchase goods when we are shopping, it is incredible. On top of that, the process involved in making a payment is highly complex. The fact is, we no longer expect to be faced with numerous decisions in a store or online. We want a simple equation where the consumer buys, the merchants sells, and payments shouldn’t even need to be thought about. PSD2 will help us along that path, making payments quicker and easier by opening up banks’ data.

However, the responsibility for steering this change shouldn’t just lie with the regulators. Traditional businesses need to focus on working together to build one uniform high-tech payments pipe that will ultimately make buying and selling less complicated.

Edward Berks, Director of Banking, Fintech and Ecosystem, Xero:

Open Banking means three major changes for accountants and bookkeepers – better access to digital bank feeds, slicker payments and new tools to empower accountants to predict when a business might need more working capital. The smartest banks and fintech players are already recognising the important role that accountants play in supporting businesses through this transition. Competition for mind-share among accountants will amplify in the coming months as new services and experiences become available across banking, payments and lending.

The most forward thinking accountancy firms, regardless of size, are finding ways to deliver great value and services to their growing client bases by embracing digital.

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

Last week, the FTSE 100 saw a late upward rush as it closed at a new record high of 7,724.22 points. This was after a fresh record high at the end of the year, spurred by a rally in mining stocks and a healthcare burst. But how will FTSE kick off the year and will it sustain its consistency in record highs throughout 2018?

According to some sources, the success of FTSE in 2018 will largely depend on the outcome of Brexit negotiations, although a rise in the pound may make it a mixed blessing. Below Finance Monthly has heard Your Thoughts, and listed several comments from top industry experts on this matter.

Jordan Hiscott, Chief Trader, ayondo markets:

I believe the FTSE 100 will go above 8,000 in 2018. In part, this is due to the current political turmoil we are experiencing, with the incumbent UK government looking increasingly unstable as each week passes, an economy that seems to be lagging behind Europe on a relative basis, and the ongoing turbulence from Brexit.

However, all these factors are already known to investors and traders and so far, the FTSE has performed well despite these fears. For 2018, I believe the Brexit turmoil will increase dramatically as negotiations with Europe continue down an incredibly fractious route.

Craig Erlam, Senior Market Analyst, OANDA:

Two key factors contributing to the performance of the FTSE this year will be the global economy and movements in the pound. The improving global economic environment was an important driver of equity market performance in 2017 and many expect that to continue in 2018, with some potential headwinds having subsided over the last year. The FTSE 100 contains a large number of stocks that are global facing, rather than domestically reliant, and so the global economy is an important factor in its performance. Stronger economic performance is also typically associated with stronger commodity prices and with the FTSE having large exposure to these stocks, I would expect this to benefit the index.

The global exposure of the index also makes the FTSE sensitive to movements in the pound. After the Brexit vote, the FTSE continued to perform well as a weaker pound was favourable for earnings generated in other currencies. The pound has since gradually recovered in line with positive progress in Brexit negotiations and a more resilient UK economy. Should negotiations continue to make positive progress this may create a headwind for the index and offset some of the gains mentioned above. A negative turn for the negotiations though would likely weaken sterling and provide an additional positive for the index.

While many people are confident about the economy, Brexit negotiations are more uncertain and will have a significant impact on the index’s performance, as we have seen over the last 18 months.

Sophie Kennedy, Head of Research, EQ Investors:

We believe that the synchronised global growth and continued easy monetary policy should support global risk assets going forward. As such, equities should deliver a reasonable return over the next year, which will be the starting point for FTSE performance.

The deviation of FTSE performance around global equity performance will likely be a function of a few factors:

  1. The level of sterling is extremely important. Many FTSE companies have very global revenue streams. As such, when sterling falls, foreign earnings are inflated. The level of sterling over the next year is likely to be a function of Brexit-negotiations, the result of which we are not attempting to forecast.
  2. There are a number of large commodity producers in the FTSE. Their profits and share prices tend to rise and fall with the price of commodities. The oil market looks more balanced than it has previously and strong global growth should boost global commodity demand. However, we have already had a large rally since the middle of 2017, so upside is likely to be more muted.
  3. The trajectory of the UK economy is also relevant, particularly for the smaller capitalisation parts of the market and sectors including housebuilders and utilities. We are not hugely positive on this point, on account of the real income squeeze and continued weak investment environment.

We feel that points 1 and 2 are neutral but point 3 is negative. As such, we expect the FTSE to deliver positive returns but likely underperform the MSCI World.

Tim Sambrook, Professor of Finance, Audencia Business School:

2017 ended the year strongly and is now around all-time highs. The 7% return and 4% dividend gain was better than most had hoped. But will this positive trend continue or will investors worry about the price?

The FTSE has performed strongly, because the global economy has done well. The FTSE is largely a collection of international conglomerates who happen to be based in the UK. The political mess has had little effect on the economic environment (fortunately!).

Strangely, a poor negotiation on Brexit will have a positive effect on the FTSE (if not the UK economy) as a large part of the earnings of the larger companies are overseas. Hence a fall in sterling will lead to a boost in earnings and hence push up the price of the FTSE.

Currently there is little reason to believe that the global economy, and hence corporate earnings, will not continue to do well in 2018. The current PE of the FTSE is not cheap at around the 18-20, and is without doubt above the long-term average of around 15-16. However, this is not excessive and could even support some negative surprises this year.

However, the underpinning of the current bull market has been dividend yields. The FTSE is currently offering 4% and is likely to increase over the coming year, with many of the large caps having excess liquidity. This is very attractive compared to other assets, particular as we shall be expecting higher rates in the future. The large number of income seekers are likely to increase the positions in the FTSE this year rather than reduce them.

Ron William, Senior Lecturer, London Academy of Trading:

The UK’s FTSE100 was reaching all-time record highs into the New Year, fuelled by a global wave of investor euphoria. 2018 was the best start to a year for S&P500 since 1999, marked by the Dow’s historic break above the psychological 25K handle.

All these technical new high breakouts are being supported by the highest level of upward earnings revisions since 2011, coupled with extreme levels of market optimism last seen at the peak of Black Monday 1987.

From a behavioural standpoint, it seems that analysts and investors are silencing tail-risk concerns in a precarious trade-off for fear of missing out on the party.

The “January Effect” is part of a tried and tested maxim that states “as the first week in January goes, so does the month”; and even more importantly, “as January goes, so does the year”. So our recommendation would be to see how January plays out as a potential barometer for the next 12 months.

However, keep in mind that we still live in known unknown times; some major markets have not even had a 5% setback in 16 months and the VIX index is at new record lows.

Back to the FTSE100, all eyes remain on the next glass ceiling: 8000. While there is an increasing probability that the market will achieve this historic price target, we must also apply prudent risk management as the asymmetric risk of a violent correction remains.

The long-term 200-day average, currently at 7422, is key. Only a sustained confirmation back under here would signal a major cliff-drop ahead from very high altitudes. Brexit tail risk will more than likely continue to weigh heavily on it.

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

We've seen some huge deals in 2017, from Qualcomm/Broadcom earlier in the year, to Gemalto/Atos in the last few weeks. We also had the 10-year anniversary of the financial crisis and the seating of Donald Trump into power.

As part of this week’s Your Thoughts, Finance Monthly reached out to experts far and wide to ask about their favourite moments in this financial year, from the most significant changes in regulation and announcements of further regulatory developments, to highlights of the most impacting acquisitions and mergers in the UK and beyond.

Andrew Boyle, CEO at LGB & Co.:

A key 2017 highlight for me surrounded Brexit and came in November at an event organised by the Edinburgh law firm Turcan Connell, which featured an SNP MP and a Conservative MEP. I expected a lively but entrenched debate carried out in a partisan fashion. To my complete surprise, the mood at the event was calm, points were made politely and there was an obvious willingness to compromise. It seems this more constructive spirit foreshadowed that of subsequent UK/EU negotiations given the breakthrough in talks with the EU and the clear indication that all parties, including the EU Commission, wanted to move forward. At the moment, the prospect of a transition period will keep the financial markets and company directors guessing what the final outcome will be. However, it is becoming increasingly clear that a failure to reach a deal will be in the interest of neither of the parties, whose economic viability is so deeply intertwined. I hope the new more constructive mood continues into the New Year.

Another highlight was the Budget. Fears of a radical change to EIS and VCT investing rules were unfounded. The Chancellor did refer to limiting EIS investment that shelters low-risk assets, but he offset this by promising increased EIS limits for investing in knowledge-intensive companies.

Continued support for early-stage businesses is key to what the Chancellor described as Britain’s position at the forefront of a technological revolution. UK SMEs will increase their total economic contribution to £217bn by the end of the decade –up significantly from 2015. In spite of the economic uncertainty around Brexit, British SMEs remain hungry for growth and are generally optimistic about the future. What often holds them back is a lack of funding, particularly through conventional avenues. SMEs often need to raise money quickly to adapt to changing markets or new opportunities, but obtaining bank financing can be a slow and cumbersome process – and that’s where EIS and VCT investors and indeed alternative lenders can help fund the gap. Specific measures announced in the Chancellor’s budget were positive for companies and investors. For now, government policy remains to support innovative companies notwithstanding the pressure to reduce tax breaks and apply funds elsewhere.

Richard Anton, General Partner, Oxx:

The biggest financial story of 2017, in the world of venture capital and technology start-ups and scale-ups, was the European Investment Fund suspending investment in UK VC firms. As an immediate result of the Brexit vote, FinTech lending was the first to suffer, before full suspension of investment into UK VCs. The EIF had been by far the single largest funder of UK venture capital firms and with the options for supply reduced so significantly, not only does this make competition for funding even more intense, the lack of on-the-ground European experience presents yet another challenge to businesses trying to grow to the next stage.

Thankfully, the British Business Bank has moved quickly to help mitigate the EIF’s withdrawal. The £1.5 billion Enterprise Capital Fund programme has got to work to support UK-based start-ups, recognising that the entire market needs to see small firms confident to apply for finance in order to grow. Perhaps the most encouraging indication that British funding is filling the void is the success of Episode 1 Ventures in recently raising £60m for its fund targeted at British early stage start-ups - £36m of this coming from the British Business Bank.

The withdrawal of the EIF shook up the market more than perhaps was covered at the time. Of course for any business to survive and grow, it needs to adapt to a range of situations, yet the sudden absence of European funding was particularly challenging. It is also one that will have long-term ramifications and when the dust settles the European funding market will look very different.

Peter Veash, CEO, Bio:

Amazon’s purchase of Whole Foods in August is my most significant financial moment of 2017. The deal was lauded by many industry pundits as a match made in heaven, with Whole Foods’ glowing reputation for offering high-quality goods marrying with Amazon’s unsurpassed track record for fast, efficient logistics – a new retail power couple was born.

The upshot? Aside from a slashing of prices across the board at Whole Foods (many by up to as much as 40%), the deal also meant that Amazon tech like the Echo, Dot, Fire and Kindle products are now available to purchase instore, while Whole Foods products are now available to buy online via Amazon. ‘Try before you buy’ Amazon Pop-Up stores have opened in locations all over the country, and Amazon Lockers have also been introduced instore, allowing customers to pick up packages and drop off returns. The deal has also given rise to rumours around the potential roll out of Amazon concept stores, including cashier-free checkouts, which would allow Amazon to push commerce tech to a new level.

The $13.7 billion megadeal knocked some competitor share prices sideways and boosted Amazon's – it rose so much on the news that some were saying they’d essentially bought it for nothing. Most importantly, it gave Amazon the physical outlets to develop the future of truly omnichannel retail, particularly within the coveted fresh grocery market (which the ecommerce giant had been preparing to attack for some time).

Marina Cheal, Chief Marketing & Customer Officer, Reevoo:

2017 marked 10 years since the financial crisis, and it’s been a story of reputations - new players trying to forge a new one, and old ones clinging desperately on to theirs.

The world’s big banks took a spectacular fall from grace, the likes of which hadn’t been seen since The Great Depression: after being perceived as trustworthy, powerful corporate behemoths for decades, consumer trust in these institutions was at an all-time low, with many feeling shaken and disillusioned by the lack of ethics displayed by those responsible for the crash.

Meanwhile, a new breed of disruptive, digital-first fintech brand was evolving to challenge the status quo. In 2017 this group of app-based banks have broken the mainstream. Monzo, Starling, Atom and others are now household names, appealing in particular to Millennials who came of age during the crisis years and had the least trust in the financial sector.

Where big institutions once represented trust, newer and nimbler banks have taken their place. Legacy is a dwindling commodity, replaced by convenience and transparency.

What we’re seeing is the next stage on the road to rebuilding consumer trust, but what people want most of all now is a sense that they are in control of their own money, coupled with an ease of use and friendly, authentic communications from their bank – and right now, the challengers are beating the legacy brands to the punch.

Howard Leigh, Co-Founder, Cavendish Corporate Finance:

This year’s November Budget was my highlight for 2017 as it provided some welcome news for the UK’s thriving Financial Services industry and saw the Chancellor confirm his commitment to maintain the UK‘s leading position in technology and innovation post-Brexit. Although it was anticipated by some that EIS and SEIS investments, were going to be in the Chancellor’s firing line, he instead doubled the EIS investment limits for “knowledge-intensive” companies, demonstrating the Government’s commitment to help UK start-ups. The Chancellor also chose to continue supporting Entrepreneurs’ Relief, which, along with other business-friendly policies, is predicted to support the inflow of billions of pounds worth of investment into growth businesses.

With Britain soon to lose access to the European Investment Fund, it was encouraging to see the Chancellor outline his plans to establish a new dedicated subsidiary of the British Business Bank to become a leading UK-based investor in patient capital across the UK. The new subsidiary will be capitalized with £2.5 billion. and will provide a cushion if negotiations with the EIB and EIF do not encourage then to continue investing in the UK. I hope, as some of it is our money and London is clearly Europe’s centre of social impact investing the EIF will now recommence its activities in the UK.

Finally, another key measure in the Budget was the introduction of a policy that will compel online ecommerce companies, such as eBay and Amazon, to police their own websites, thus helping to stem the £1.2 billion yearly tax loss due to fraudulent sales. I first raised this issue in an Oral question in the Lords some 2 years ago and am delighted to see that the campaign run largely with VatFraud.org and Richard Allen has been successful.

The Autumn Budget was a pivotal moment for the UK’s Financial Services sector and the policies laid out by the Government firmly position it as a friend to business. Not only will these policies help to boost UK businesses in the tech and digital sectors, but it will help enhance the City’s position as a leading global centre for finance and innovation.

Tsuyoshi Notani, Managing Director, JCB International (Europe) Ltd:

PSD2 can revolutionise retail banking, generate further investment into fintech, and drive innovation. We’re focused on increasing partnerships with PSPs and fintech firms, enabling them to secure global reach as a gateway to Asia, so February 2nd, when the UK government confirmed its PSD2 timetable, was a really promising step in the sectors’ quest to level the playing field."

We would also love to hear more of Your Thoughts on your favourite moments of 2017’s finance world, so feel free to comment below and tell us what you think!

The Paradise Papers have revealed secret boltholes for many firms and individuals around the world, from sportsmen and the Queen to giants like Apple. But what are people’s thoughts on tax avoidance, which is very different from the illicit tax evasion? Tax avoidance has a large range of angles to consider, from investment to the moral dilemma of national tax, the spirit of the law, and of course financial protection.

Below Finance Monthly hears Your Thoughts on tax avoidance and offshore tax law loopholes, referencing the latest leaks and the information found therein, with experts from all round, covering various sectors.

Simon Browning, Partner, UHY Hacker Young:

The net is continuing to close in on a variety of tax planning and more information from the Paradise Papers will no doubt fuel HMRC’s efforts of collecting the tax gap.

In my opinion, there are two types of taxpayers who are getting caught up in the headline of ‘tax avoidance’:

We are seeing many more arguments in the press about the moral position of taxpayers and it is clear the landscape has changed over the past five years or so, with tax avoidance appearing to be as abhorrent as tax evasion.

However, it is the courts that decide on tax matters and not the press, so we need to be careful not to tar everyone with the same brush and to allow informed decisions to be made through the correct channels.

The continuing change in landscape makes it very difficult for taxpayers and advisers to know where the line now is between acceptable tax planning and abusive avoidance.

It will be very interesting to see how HMRC and international tax authorities deal with the information from the Paradise Papers and whether they can successfully filter their way through commercial tax saving arrangements as compared to abuse of apparent loopholes.

Karl Pemberton, Managing Director, Active Chartered Financial Planners:

First and foremost, we must stress that we’re not ‘tax advisers’, albeit we do have a remit to consider taxation when advising clients on their investments.

The issue for us here is morality, as Tax Avoidance (or mitigation) is not illegal. Every client that invests within an ISA does so for the taxable benefits it brings. Similarly, so does a pension. If the tax breaks were not there, I doubt people would use them as they do. Investing offshore has always been a legitimate way of investing too, however some of the more complex schemes raised of late raises a question of morality, rather than legality.

I believe it’s the amounts involved that make it feel immoral to the majority of the general public. If, for example, we see someone who is taking home a large pay packet not paying the tax man the ‘fair’ amount, it makes people feel angry, as they’re already winning the lottery, as it were. The problem is, if it’s immoral to ‘legally avoid tax’ at all, the amounts should be irrelevant. This issue of morality, therefore, makes it impossible to police, as everyone has differing views.

If we’re saying that ‘avoiding tax’ at any level is wrong, then that should also mean the end to ISAs, pensions, and every accountancy business in the country, as this is their purpose in the end. It would become an absolute minefield.

Miles Dean, Managing Partner, Milestone International Tax:

It would be very surprising if the affairs of those individuals concerned were illegal or nefarious. It is the theft of the papers that is illegal.

Some of the documents relate to matters 75 years ago when the world was a very different place. Recent developments have made a significant impact on the use of tax havens, namely the common reporting standard (CRS) and FATCA. Both FATCA and CRS are automatic exchange of information protocols that mean privacy is no longer what it used to be.

Just because an individual makes an investment that is based offshore does not mean that they have done anything wrong – if they fail to disclose it (and the return they make) on their tax return then that’s tax evasion. But to make the quantum leap and suggest that everyone from the Queen to Bono is dodging tax because some of their investments are made via Bermuda, Cayman or Malta is stupidity on a grand scale.

Regarding Lord Ashcroft, if he is non-UK domiciled then he will benefit from the remittance basis of taxation. The fact that he took steps to mitigate his UK liability (legally) is a matter for him and his conscience, not the media.

The comments this morning by Shadow Chancellor John McDonnell are wide of the mark – imposing a withholding tax on dividends will not stop tax abuse - it would simply make the UK less competitive as a jurisdiction for large multinationals, at a time when we need to be more competitive than ever.

John McDonnell’s comments illustrate just how magnificently out of touch he is with reality. A worrying thought given he’s likely to be our next Chancellor.

Dr Daniel Cash, Lecturer in Law, Aston University:

Offshore investing, in very general terms and in order to provide a realism check, is legal. The ability to invest one’s funds offshore, traditionally in a small jurisdiction that does not have the most sophisticated regulatory structure, is noted as being a viable and useful investment strategy for a number of reasons. Whether it is to diversify one’s exposure to risk, to protect one’s assets from political variabilities (like war or political instability, for example), or to protect against market volatility, there are a number of benefits to investing offshore. However, ‘investing offshore’ masks a number of variances which really should be revealed: offshore investing may relate to an investment fund being ‘domiciled’ abroad, which is legal, but offshore investing is sometimes cited when people attempt to remove their income from tax authorities, which is not legal. Whilst some who are caught in the crosshairs of this latest scandals have not, necessarily, been accused of operating illegally, it is really the close connection between the business and political elite and these tax-avoiding schemes which is causing the scandal to have such an impact. Whilst allegations of illegality will likely be forthcoming, at the moment the focus is on both a. proximity between the scheme and the elite, and also b. the issue of declaration, as witnessed by the story enveloping Lord Ashcroft at the moment. Yet, the proximity-issue points to a much larger issue, and one which, rather regrettably, is difficult to paint in a positive manner.

The former British Prime Minister, David Cameron, once opined that tax avoidance – in relation to the comedian Jimmy Carr being outed as using an aggressive tax-avoidance scheme – is ‘morally wrong’, with his successor, Theresa May, vowing to combat tax-avoidance almost immediately after taking office. However, the first point to note is that it will be incredibly interesting to hear Theresa May’s responses to this latest leak, one which puts some of her Party’s most revered figures in the centre of the scandal (one doubts she will be as forthcoming this time). The second point is more abstract; the absolutely incredible amount of people and corporations caught up in this scandal can only tell us one thing: tax avoidance, or at least doing everything possible to reduce one’s tax burden, is inherent within society (particularly, rather obviously, for those with large reserves of funds). This should not really be revelatory, but the response to the Paradise Papers suggests that maybe it is. This latest instance of proof that influential people systematically ‘game the system’, should be the spark that initiates deep-rooted reform of the market-centred society we live in, but one should be able to realise how fanciful that thought is when looking at the impact of the Panama Papers; that is quite a way to end on the back of what, to all intents and purposes, should have been an era-defining revelation in its own right, but now represents par-for-the-course.

Nigar Hashimzade, PhD. Professor of Economics, Durham University Business School:

The recently leaked documents yet again brought to light offshore investments by firms and individuals, many of whom are politicians and celebrities. Most of the tax-reducing arrangements mentioned in these documents, however, are perfectly legal. Among many questions this may raise, two are “Is investing abroad a bad thing?” and “Do tax laws favour the rich?       “

Investment in global financial markets is similar to global trade. Both remove territorial constraints to economic activities and bring benefits. Investing abroad should be thus no more objectionable than buying imported cars or imported vegetables. However, offshore opportunities are not available to the majority of taxpayers, - typically, they are for very large investments, - so the issue here is the underlying inequality of opportunities, rather than an evil nature of global markets.

According to the official statistics, in 2017/18 tax year the top one percent of UK taxpayers earned 12% of the total pre-tax income and paid 27.7% of the total income tax revenue. The bottom fifty percent earned 25.3% of total pre-tax income and contributed 9.7% of the total income tax revenues. In 1999-2000 these numbers were 11% and 21.3% for the top one percent, and for the bottom fifty percent they were 23.8% and 11.6%, respectively. This reflects growing progressivity of the UK personal income tax, which also appears to have outpaced the growth in income gap.

The pattern is even stronger in the United States. There, in 2014 the top one percent of taxpayers earned 20.58% of total income and paid 39.48% of all income taxes. The bottom fifty percent earned 11.27% of total income and contributed 2.75% of all income taxes. For each dollar earned, the top one percent taxpayers paid 27.1 cents in tax, whereas the taxpayers in the bottom fifty percent paid 3.5 cents, - a more than seven-fold difference.

Thus, a highly progressive income tax system in the UK and in the US leads to the highest burden of income tax falling on the richest taxpayers. What these numbers also tell us is that the income distribution in both countries is highly unequal. This is why rich taxpayers have opportunities unavailable to many, - in particular, they can afford incurring high costs of offshore investments that give them higher net returns. The task for the governments is to address the roots of inequality, and this goes far beyond changes in the tax law.

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

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

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

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

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

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

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

Gianluca Corradi, Head of Banking, Simon-Kucher:

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

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

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

Paresh Raja, CEO, MFS:

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

Angus Dent, CEO, ArchOver:

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

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

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

Emmanuel Lumineau, CEO, BrickVest:

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

Increasing interest rates has a direct impact on real estate. Higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. There has certainly been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.

We continue to see the highest level of volatility from the office sector as many international firms currently headquartered in the UK put decisions on hold over their long-term office space requirements. If the UK no longer gives businesses access to the European market, they may need to spread their staff across multiple locations to more efficiently access both the UK and European market. Indeed our recent research showed that 34% of institutional investors believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.

Uma Rajah, CEO, CapitalRise:

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

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

James Bentley, Trader, Learn to Trade:

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

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

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

Paul Davies, Director, Menzies LLP:

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

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

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

Mihir Kapadia, CEO and Founder, Sun Global Investments:

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

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

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

Frazer Fearnhead, Founder and CEO, The House Crowd:

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

Gregg Davies, Company Director, IMA Financial Solutions:

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

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

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

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

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

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

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

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

Johan Rewilak, Economics Expert, Aston Business School:

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

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

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

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

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

John William Gunn, Executive Chairman, SynerGIS Capital PLC:

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

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

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

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

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

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

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

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

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

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

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

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

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

Donald Trump is set to make a decision on the Chair of the Federal Reserve by Thursday this week. This decision will shape a big part of the US President’s economic legacy in the job.

The current chair of the Federal Reserve was appointed by President Obama in 2014 and is the first woman to hold the position.

Below Finance Monthly hears from a few expert sources on their thoughts surrounding the future prospects and overall impact of the appointment of a new US Fed Chief.

Joel Kruger, Currency Strategist, LMAX Exchange:

We worry investors could be setting themselves up for a letdown on this expectation the appointment of Jerome Powell as the next Fed Chair will generate a sustainable rally in risk assets. There is a danger associated with what has become a fixation on 'one dimensional role designation.' Central bankers should be neither inherently hawkish or dovish. The Fed's responsibility is to ensure it works in the best way possible to achieve its goals of maximum employment and price stability.

Considering where we're at in the cycle, there's simply little room for dovish central banking into 2018, much in the same way there was little room for hawkish central banking back in 2008, at the onset of the financial markets crisis. We believe we've reached the point where dovish leanings will no longer pair well with effective monetary policy, given an economic outlook contending with the very nasty combination of full employment, financial stability risk (from overinflated stocks), and the threat of rising inflation. We would also add that the prospect of Powell as the next Fed Chair is one that has been played out ad nauseam. This alone leaves risk assets vulnerable and exposed to a sell the fact reaction, albeit after what is likely to be an initial wave of euphoria.

Mihir Kapadia CEO and Founder, Sun Global Investments:

After months of speculation, President Donald Trump’s nominee for the Federal Reserve chairman seems likely to be Federal Reserve governor Jerome Powell. A former investment banker with Treasury experience during the Bush administration, Powell looks to be a reliable choice for the role. The markets have reacted positively to the suggestion that Powell is the frontrunner in recent weeks following the President’s interviews with each of the candidates.

However, Powell’s succession to the Fed chair is not necessarily secure. Other candidates include former Fed governor Kevin Warsh, seen as a more hawkish alternative to the polices of Yellen ad Stanford Professor John Taylor who would definitely be seen as more hawkish. Gary Cohn, Trump’s economic adviser, was also touted for the job, although the President has indicated his preference for Cohn to remain in the White House. Furthermore, current Fed chair Janet Yellen still remains a viable possibility.

Trump’s relationship with Yellen has been tricky to define. On the campaign trail, Trump was highly critical of Yellen and her tenure, and accusing her of being political. However, his stance has softened considerably since becoming President, praising her both personally and professionally, leading some to believe that he could yet choose her for another term. Of all the candidates, Jerome Powell represents a pragmatic compromise for the President – he represents a break from the past and a shift towards Trump’s administration whilst representing continuity as his policies are unlikely to differ substantially from Yellen’s. Whatever the President’s decision, the Fed chair will play a powerful role in shaping the economic identity of Trump’s America.

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

According to today’s reports, UK GDP grew by 0.4% in the third quarter of the year, relatively better than expected, and up from 0.3% growth from the second quarter. The UK’s manufacturing sector also returned to positive growth, with output rising by 1% during the quarter. Below are some comments Finance Monthly had heard on the matter.

Rebecca O’Keeffe, Interactive Investor’s Head of Investment, had this to say: “With expectations still rife that the Bank of England will raise interest rates next month, today’s GDP figures will be closely scrutinised to see whether they give any excuse for policymakers to hold fire or if they support their hawkish intent. Uncertainty about Brexit, the relatively fragile state of the British economy and fears over personal debt and household incomes could all be making Mr Carney think twice about whether now is the right time to start the process of raising rates. However, the prospect of delaying could lead to accusations of the MPC crying wolf again and severely dent sterling. Rocks and hard places abound, and the Governor will be keeping his fingers crossed that today’s figure gives him a valid excuse either way.

“Lloyds bank, which has more private shareholders than any other UK company, has become a stalwart income play for investors, with a dividend yield of close to 5% and optimism that this yield could increase. Although there was no new comment on dividends, Lloyds confirmation today that they expect to ‘deliver a progressive and sustainable ordinary dividend for the full year and the Board will give due consideration at the year end to the distribution of surplus capital through the use of special dividends or share buy backs’ is music to the ears of income investors.”

Emmanuel Lumineau, CEO at BrickVest, said: “Today’s announcement is good news for the economy and will bolster the case for higher interest rates for the first time in more than a decade. For the commercial real estate industry, higher interest rates and rising inflation make borrowing and construction more expensive for owners, which can have a constraining effect on the market but can also lead to an increase in property prices. There has certainly been an abundance of international capital flowing into real estate, almost every major institutional investor globally has been increasing their portfolio allocation to real estate over the last five years mainly because of lack of alternatives.

“We continue to see the highest level of volatility from the office sector as many international firms currently headquartered in the UK put decisions on hold over their long-term office space requirements. If the UK no longer gives businesses access to the European market, they may need to spread their staff across multiple locations to more efficiently access both the UK and European market. Indeed our recent research showed that 34% of institutional investors believe the biggest real estate investment opportunities will be found in the office sector and the same number in the hotel & hospitality industry over the next 12 months.”

Mihir Kapadia, CEO and Founder of Sun Global Investments, has said: “While the 0.4% is still below the UK’s long term growth rate, it certainly contributes to a positive momentum, and means that the economy has not yet rolled into a recession that was largely predicted over Britain’s decision to leave the EU. The UK’s annualised growth is now sitting at 1.5%, a subpar score against a formidable looking EU economy.         

“Sterling has risen on the back of today’s growth report, up 0.25% against the US dollar to $1.317. The City is getting into a more hawkish tone, expecting that the pick-up in growth raises the chances of a UK interest rate rise next month. The third quarter has been particularly difficult for the UK economy, with inflation ringing 3% while wage growth has been subdued. Consumers are facing an increased squeeze in living standards while the city has been brought to its knees by the increased uncertainty over Brexit proceedings.”

About Finance Monthly

Universal Media logo
Finance Monthly is a comprehensive website tailored for individuals seeking insights into the world of consumer finance and money management. It offers news, commentary, and in-depth analysis on topics crucial to personal financial management and decision-making. Whether you're interested in budgeting, investing, or understanding market trends, Finance Monthly provides valuable information to help you navigate the financial aspects of everyday life.
© 2024 Finance Monthly - All Rights Reserved.
News Illustration

Get our free monthly FM email

Subscribe to Finance Monthly and Get the Latest Finance News, Opinion and Insight Direct to you every month.
chevron-right-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram