According to the Consumer Prices Index (CPI), inflation in the UK hit 3% this past September, a level not seen since April 2012, climbing from 2.9% this August.

Overall this rise in inflation means a more assured likelihood of increased interest rates, which currently sit at 0.25%. State pension payments will also rise in line with inflation figures in April 2018.

Most rumour surrounding the inflation rise speaks of the Brexit pound drop and the subsequent increase in the cost of imported goods.

Below Finance Monthly had heard from a number of reputable sources, experts and analysts in the financial sphere, with your Thoughts on the current inflation high and what it means for Britain and beyond.

Emmanuel Lumineau, CEO, BrickVest:

The UK’s relative economic strength post Brexit has now waned as consumers begin to feel the impact of rising inflation. Higher interest rates should be coming 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.

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. 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.

Matthew Brittain, Investment Analyst, Sanlam UK:

While far from being a watershed moment, today’s announcement that the rate of inflation has reached the 3% point does pile more pressure on already squeezed living standards. For people up and down the county, the pound in their pocket now feels a little less valuable. Inflation is now confidently outstripping wage rises, which have tended to be around 1-2%, meaning that people’s disposable income is in decline and many will have to take on more debt or save less in order to maintain their living standards.

Our view is that current levels of inflation are nothing to worry about – it’s simply a case of businesses passing on higher import costs, brought about by a fall in sterling, to their customers. Over the coming months, our expectation is that it will start to fall back to 2%, the level at which the Bank of England is mandated to maintain it. This view is not necessarily shared by the Bank of England, and today’s announcement makes an interest rate rise in November a near certainty as the Monetary Policy Committee takes action show they are keeping inflation under control.

Stephen Wainwright, Partner, Poppleton & Appleby:

While the level of corporate insolvencies are at an all-time low, personal insolvencies have jumped to their highest level in almost three years. It is no coincidence that the increase comes as incomes are squeezed and failing to keep pace with inflation at 3%.

The level of annual inflation is anticipated to peak in the next three months, but while companies are trying best to absorb the increase in material costs due to the weaker pound, this can only be absorbed for a short period. Therefore don't be surprised to see higher shop prices in the near future, which in itself will cause yet more inflationary pressures.

To compound matters, the BOE have made it clear that interest rate increases are on the radar which will impact on the £ in the pocket. We as a practice have seen a significant increase in advisory work which will inevitably lead to an increase in business failures.

The slow down is currently being concentrated in the consumer-led businesses such as retail and hospitality sectors. Recent data suggests that the construction industry has seen a downturn. The sale of motor vehicles have seen a steady decline in the last six months so clearly people are reluctant to spend on big-ticket goods.

While this sounds very negative, we must remember that the economy has been the fastest growing in the G7 for a number of years and unemployment is at its lowest since 1975. This has all happened during some of the most financially challenging times in living memory.

Has anyone tried to get a good plumber or electrician lately? Well, believe me, there is still a lot of confidence in the economy, and we are as a nation are very resilient.

Owain Walters, Founder & CEO, Frontierpay:

UK inflation figures have continued their rapid rise to 3%, coming in way above the Bank of England’s target of 2%. Sterling had a small spike against all major currencies following the inflation release, but the gains were short lived. The markets reacted accordingly to the announcement, with the pound falling throughout the day to 1.1212 and 1.3174 against the euro and US dollar, respectively.

Investors are expecting the BoE to respond by raising interest rates at its next monetary policy meeting in November, but this could be a very slow and soft approach, with rates potentially remaining at those levels for a couple of years. This has the potential to hinder any sterling strength over the coming months, with Brexit also still firmly holding the pound down.

Daniel Ball, Director at eProcurement provider, Wax Digital:

With inflation on the rise, procurement teams need to consider how to mitigate against price rises from their suppliers. Exchange rate fluctuations and rises in inflation are difficult to predict, but organisations can take steps to actively protect themselves from sudden price increases:

Be proactive

It’s important that procurement professionals, particularly those with an overseas supply chain become more proactive and disciplined when it comes to their sourcing and tendering activities. This will enable them to lock down pricing for a given period of time so that they are exempt from any cost or exchange rate fluctuations.

Collaborate with finance

Large multi-national enterprises, who do much of their buying overseas are adept at mitigating exchange rate and inflationary pressures, using complex management instruments borne from operational necessity. But if you’re a smaller organisation that only does a portion of business internationally, protecting against inflationary or exchange rate hikes won’t necessarily be a core competence.

If nothing is in place it may be time for procurement to raise the topic with the FD – most of the large banks can offer FX and inflation hedging tools. If your organisation uses these instruments already, then procurement needs to collaborate more closely with finance to discuss how to extend these current arrangements into more areas of purchasing, not just perhaps direct expenditure, but into indirect categories at risk too.

Assess risk

Supply chain evaluation needs to include risk matrices which cover not simply the core KPIs around financial stability, performance etc, but in the case of overseas suppliers then factors such as geopolitical, logistics and currency metrics too. Procurement professionals need to understand their supplier tiers, from the critical strategic ones that support production or service delivery, to the mid-tier in the larger spend categories and into the long tail invoicing infrequently. They then need to decide which parts of the supply chain will need a secondary wave of potential suppliers lined up to mitigate risk if things change significantly. This alternative supply chain may be more expensive, but will minimise the impact to business as usual if there are significant changes to the exchange rate.

John Calverley, Lecturer, London Financial Studies:

Britain’s headline inflation rate rose to 3% in September, well above the Bank of England’s 2% target. But this rise is entirely due to higher import prices caused by the devaluation in Sterling after the Brexit vote. Unless Sterling slumps again – unlikely as it is already historically low - inflation will drop back to 1.5% or below in 2019.

The conventional view is that when unemployment falls to a certain level the labour market heats up. Workers and unions are emboldened to ask for higher wages and companies become willing to offer higher wages to attract workers. For the UK (and US) that level has long been put at about 5%. In Britain unemployment has fallen from 4.9% to 4.3% since the Brexit vote which suggests wage growth should start to pick up. That is the Bank of England’s view which is why a programme of gradual interest rate rises is likely over the next year.

But some economists fear that the conventional view is wrong. Around the world wages are not responding to low unemployment the way they used to. In Japan the labour market has been tight for some time and yet wage growth is zero. In the US unemployment is also almost down to 4% yet wage growth is stuck at 2-2.5% pa, the same as in Britain. Exactly why wages are quiescent is disputed, but most put it down to the combination of weak unions, fearful workers reluctant to push for a pay rise and the competitive pressures of globalisation.

Inflation hawks fear that we have been lulled by these considerations. They worry that very soon wages and prices will start to surge, creating a serious inflation problem. The best outcome would be for a very gradual lift in wages even as unemployment falls further. After all unemployment typically stood at 2-3% in the 1950s and 60s so perhaps that is possible again today. And if wages lift only gradually this would support consumer spending while keeping the Bank of England in gradualist mode, raising rates but not too far or too fast. At the moment this seems the most likely outcome which is why, after 2017, 3% inflation may not be seen again for some years.

Katharina Utermoehl, Senior Economist for Europe, Euler Hermes:

Inflation reached three% in September, the highest rate seen in more than five years. The sharp acceleration from around one% a year ago has been largely driven by the sharp depreciation of the pound following last year’s Brexit vote which made imports more expensive. In addition, increases in food and transport prices further pushed up annual headline inflation from 2.9% in August.

For 2017, we expect UK inflation to come in at 2.7% before slowing slightly to 2.6% next year. Consumers will continue to feel the pinch with inflation easily exceeding sluggish wage growth which is close to two% and showing no sign of a pick-up.

We expect UK GDP growth to slow down to 1.4% this year and one% in 2018, down from 1.8% in 2016. The pronounced pick-up in consumer price inflation is raising the probability of the Bank of England (BoE) increasing the benchmark interest rate from the current record low of 0.25% for the first time in over a decade. The BoE has long tried to strike a balance between supporting economic activity and ensuring price stability, but with inflation now registering a full percentage point about the BoE’s two% price target the latter objective will likely take priority. We expect an interest rate hike to be announced as early as this year.

Mihir Kapadia, CEO and Founder, Sun Global Investments:

The rising inflation is largely due to the fall in value of the pound over the Brexit uncertainties. With increasingly abrasive negotiations underway in Europe, along with political cracks appearing within the British parliament, the period of uncertainty is long from over. Therefore, we can expect that the inflation figures will only be climbing northward though the foreseeable future unless and until the UK political machinery brokers a viable deal with its European counterparts and thereby douse the uncertainty which is inflaming the markets.

Meanwhile, the pick-up in inflation raises the likelihood of an increase in interest rate from the Bank of England, which is currently at 0.25%.  That being said, we would argue against a premature rate rise, considering the current political uncertainty. An interest rate rise now, which increases prices for millions of mortgage holders and could dampen economic activity, could just be the final blow to the squeezed out UK consumer.

Greg Secker, CEO, Learn to Trade:

It’s no secret that the UK’s divorce from the EU has left the economy vulnerable to more persistent price pressures, which has had a negative impact in the short term for consumers. This hike in inflation rates has tightened the squeeze on British households. The rise in the cost of everyday goods means workers are seeing the value of their pay packets weaken in real terms.

Over the next coming weeks, UK businesses will continue to take a ‘business as usual’ approach of experiencing higher costs from exports and cutting costs where possible to ease the pain of a potential decrease in business profits and power to purchase. Yet, while it may seem like doom and gloom this winter there is a light at the end of the tunnel. We expect the pound to strengthen in the long term, increasing buying power and easing those tight purse strings, but this will be dependent on the trade agreement and movements within the Brexit negotiations.

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 a report co-authored by Yandong Jia, a researcher at the Research Bureau of the People's Bank of China, alongside Jun Nie, a senior economist at the Kansas City Fed, “analysis indicates that the momentum of Chinese growth is likely to slow in the near term."

As the world’s second largest economy, China’s GDP has seen a 6.9 YoY increase, according to China’s National Bureau of Statistics (NBS). However, the above report suggests further growth to be considered bleak. "An analysis of its underlying forces suggests this momentum may not be sustainable," it reads. "In addition, strength in policy-related variables has been waning, creating additional downside risks to near-term growth."

Finance Monthly, this week spoke to several expert sources on China’s economy and prospected continued growth. Here are Your Thoughts.

Josh Seager, Investment Analyst, EQ Investors:

Every so often, investor concern about a Chinese hard landing rises. There have been numbers of catalysts for this over the past three years, from Chinese equity market sell offs to expectation of capital outflow induced currency depreciation. Most have passed without issue and are now barely remembered

The biggest cause of concern, however, has been debt. This has led many commentators to predict a large credit crisis. We believe that such concerns are overemphasised and stem from a key misunderstanding: the Chinese economy is ultimately guided by the Communist party not market dynamics. Credit crises generally happen because heavily indebted borrowers lose access to financing. In China’s case, the communist party control both the lenders (the banks) and the problem borrowers (the heavily indebted State-Owned Enterprises (SOES). Consequently, they are in a perfect position to manage the riskier debts and avoid defaults.

The real risk to China is much less exciting. Without ‘creative destruction’ where unprofitable companies are allowed to default, resources become misallocated. This means that unprofitable and unproductive companies, many of whom should be bankrupt, hoover up capital, employees and materials that could be better used by more productive firms.

This is happening in China, SOEs are hoarding resources in spite of the fact that they have get 1/3 (capital economics) of the return on them that private companies do. The route out is through supply-side reform but is difficult. It requires bankruptcy, bank recapitalisation and would probably lead to higher unemployment and increased uncertainty.

The Chinese government is financially strong and can afford to do this now. However, reform will get more difficult and expensive as the stock of debt builds. If President Xi chooses to pursue reforms we are likely to see short term pain for long term stability. If not, we will see a continuation of the status quo for the next few years but future GDP will be lower as a result.

Jonathan Watson, Chief Market Analyst, Foreign Currency Direct:

The Chinese economy has been wobbling with concerns over the pace of economic growth, which peaked at nearly 15% in 2007 but has been languishing around 6.9% lately.

Both business and consumer debt is high, and there are wider concerns that the largely export driven growth the economy has seen in the last few decades is coming to a halt.

Previously voiced concerns over the legitimacy of Chinese economic data raises questions about the extent of the trouble the economy could be in. Overlooking those fears, what appears clear is that the Chinese economy is still improving. With the global economy predicted to grow by 3.6% this year and 3.7% next year, according to the IMF, China should have little to worry about.

As a net exporter, the global economy will continue to have an effect on China’s economic growth. Any readjustments could cause turbulence but I see the trajectory as positive. Rather than hitting a wall as many have been predicting for years, I expect the Chinese economy will be building over or through one…

Erik Lueth, Global Emerging Market Economist, LGIM:

The Chinese economy is indeed likely to slow from here, but it is unlikely to hit a wall. Growth has been above the official target of 6.5% so far this year, powered by exports and a buoyant property sector. But, both of these drivers are fading.

In response to runaway house inflation in prime cities, the government tightened prudential measures over the past year or so. This has led to weaker housing demand and prices with the latter now falling in tier-1 cities. Similarly, exports seem to have peaked with PMIs in advanced economies looking stretched and the Chinese currency no longer falling in real terms. In our base case the economy would slow from around 7% this year to 6.5% in 2018 and 6.2% in 2019.

We are concerned about high debt levels, but the Chinese economy hitting a wall is a mere tail event in our forecast. To begin with, a financial crisis doesn’t look likely (as I have argued here on our investment blog, Macro Matters). China’s debts to foreigners are negligible and the capital account remains tightly managed. Key debtors and creditors are state-owned—state-owned enterprises and banks, respectively—greatly reducing roll-over risks. And, shadow banking while risky is still too small to overwhelm the state banks.

Second, China still has ample fiscal space. If it were to increase its fiscal deficit – estimated at around 12.5% of GDP – by 2 percentage points over each of the next 5 years, government debt would rise from around 70% of GDP today to 105% of GDP in 2021. This is not negligible, but certainly manageable given high savings rates and potential growth.

If something has the potential to drive China against the wall, it would be the deflation of a property bubble. As always spotting a bubble is challenging, but on balance we discount it. According to BIS data real house prices have been flat since the global financial crisis on a nationwide basis. Moves in prime cities have been anything but sideways, but at 90% over 3 years, increases remain well below the 300% witnessed in Tokyo before its bubble burst in 1990.

Dr Ying Zhang, RSM Rotterdam School of Management, Erasmus University:

China’s economic growth from the factor-driven to an efficiency-driven in the past 3 decades has not only brought China to be the world manufacturing center in the past, but also leveraged China as one of the important “spinal joints” of the world-body for the future. The reason of its importance is consistent with the global phenomena and world economy integration, as well as the interdependence between China and the rest of the world.

China’s supply-driven and quantity-based catch-up model is very effective, particularly to bring China to the category of middle-income countries; however, once stepping into such a territory, the historical evidence already shows that the chance to be trapped in there is be very high, if without proper in-time transformation.

Due to the high-interdependence, China’s reduced economic growth rate, though not pulling China’s economy moving down, has pulled exponential impact on some countries in terms of their employment rate and economic performance. Such symptom calls for worries and blaming to China, with two different messages: one, China hits the wall; second, China is transforming and preparing for the innovation-driven economic growth model.

China’s current transformation, in terms of being inclusive and quality-based and dramatic rising evidence in domestic consumption and prosperous service sector, implies that China will not be falling into the first proposition. It is also supported by the vision and the joint effort of Chinese citizens, global participants, and Chinese government to build China as an inclusive society and sustainable economy for the sake of world integration and global sustainability. In principle, this direction is presented as a paradox where China’s transformation is empowered by massive entrepreneurship and innovation in the current technology-driven and digitalization era ,while presented with a reduced GDP growth rate. The underlying matter is our perception and the angle to view it.

China’s economy does not hit the wall. Instead, it is on drive with much more power. With corrected understanding on the relationship between what China is working on and what the statistics simply presented, there would be more space for the world to grow together, for the world economy to be more stabilizing, sustainable and integrative.

Franklin Allen, Executive Director, Brevan Howard Centre for Financial Analysis:

Academics and journalists often predict that the Chinese economy’s growth will “hit a wall” and slow down dramatically. So far this has not happened. The Chinese economy has slowed down from about 10% annual real GDP growth several years ago to the current 6.5-7.0%. My own view is that this kind of growth rate is likely to continue for the next few years at least. The Chinese government still has a large degree of control over many aspects of the economy and if growth appears to be missing this target, they can ensure enough extra activity is undertaken that it hits it. There is a significant amount of debt in the Chinese economy but much of this is local government debt. The problem is that the funding of local governments is not well structured currently. They do not have taxing powers and do not receive large block grants from the central government. At some point the Chinese government will need to solve this problem. However, in the short run debt figures in China should be interpreted in a different way than equivalent numbers in Europe or the US.

In the long run, I think the Chinese economy has the capability to grow more quickly than current rates. The problem is that the financial system does not provide productive small and medium sized enterprises with the financing they need. They are the growth engines the economy requires and has used in the past during the fast growth period. If you look at the interest rates these firms are prepared to pay in the shadow banking sector, it seems likely they can grow quickly if they could obtain finance through the formal financial system. At the moment this is geared up to provide large state-owned enterprises with finance but they do not require very much. They do not have many prospects for growth. Hopefully, reforms to the financial system that have long been discussed and that will allow flows to the firms that need then will be implemented before too long.

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

Following Monarch Airlines’ recent closure 110,000 passengers were left overseas according to reports. The overall cost of returning these passengers was reported last week at £60 million. In addition, nearly 1,900 jobs were lost as a consequence of Monarch ceasing trade, and the collapse of this 50-year-old airline is the largest ever for a UK airline.

So why did Monarch drop to administration? Terror attacks in Tunisia and Egypt, increased competition and the weak pound have all been reasons pinned to the airline’s demise.

This week Finance Monthly asked experts in the aviation industry and market analysts about their thoughts on the reasons behind the collapse, and the overall impact this ruin will have on markets, customers, travel and other airlines.

Mike Smith, Company Debt:

The collapse of Monarch airlines to someone born in the fifties will be a sad day as it was a very popular carrier in the 70’s and 80’s. If you went to Lanzarote you probably used Monarch at some point. With the advance of low cost airlines, the pressure was always on and with paper thin profit margins any business error is punished severely.

As far as customers are concerned if they booked the holiday themselves and paid by credit card they will be covered under section 75 of the Consumer Credit Act. In effect the ‘card’ company is as liable as Monarch provided the flight cost more than £100. If a holiday was booked online through an ATOL registered travel agent they will be protected there too. Typically, you are covered for flight, car hire and hotel accommodation.

So, in the main the bulk of travellers will be compensated. A question I would pose is, what does it say about us as a society when a company such as Ryan Air apparently thrives, whilst Monarch bites the dust. I’m sure there are some who will say that it was a failing airline and an ‘accident waiting to happen’ and there is some truth in that. Personally, I will be sad to say it disappear from the radar.

Richard Morris, Partner, Whistlejacket:

£60 million for 110,000 rescue flights is a considerable sum of money, and it raises a few questions. At an average cost of £550 per repatriation flight, they are budgeting for an awful lot of complimentary peanuts. I’d guess a lot of free champagne will be served in the boardrooms of the other airlines who have been asked to step into the breach and bring everyone home.

However, there’s a great brand opportunity here for all the ‘rescue’ airlines. A grand gesture at this point, reducing some or even all of the cost, would buy them a lot of brownie points, with passengers, government and the wider tax paying public, and it won’t cost them anything like £60m to do it.

Before the Government (or the airlines) start shelling out, the insurance companies and credit card companies will be asked to bear much of the cost.  Plus, that £60m is the gross cost to the government, therefore net costs to airlines will presumably be considerably cheaper.

Social content opportunities will abound as the ‘rescue flights’ bring folk home and grateful passengers give their thanks. It’s hardly airlifting people from a war zone, but being trapped abroad with no ticket home is still an unsettling experience. My guess is, passengers will be putting their names up in lights as a result.

It will take speed, creative thinking and agility, but making a big gesture now on the costs of this operation will pay dividends to the brands that offer to underwrite the rescue. In a UK airline industry beset by British Airways IT crashes and strikes, Ryanair flight cancellations and now Monarch falling into receivership, there’s a gaping good news void begging for a right-thinking brand to fill it.

Quick someone. Put your hand up first.

Alex Avery, MD, Pragma’s Airports, Travel and Commercial Spaces:

Causes for Monarch’s collapse

Looking at the causes of Monarch’s collapse, there’s a few factors going, not least a change in the markets it serves.  The political instability in many of its key markets, such as Egypt and Tunisia, has mean it had to scale back flights to these destinations and compete more directly with short-haul European carriers, which is a very competitive market.

The exchange rate is another factor that’s impacted airlines. For Monarch, the majority of revenue is generated in pounds whilst the cost of fuel and aircraft leasing is paid out in dollars.  The pound depreciating has impacted Monarch substantially.

Given the pressures in the market, it’s possible other airlines will follow Monarch’s collapse.  This means we’ll be left with a few of the large legacy players, like BA and Lufthansa - who are subsidised by long-haul – and the dominant low-cost leaders, dominating what is a more and more challenging market to operate in.

Impact on market

There’s a lot of movement in low-cost at the moment - mergers and a move towards strategic partnerships.  Traditional low-cost players like Norwegian, are growing very fast adding long-haul and transatlantic into the mix, and developing partnerships with other low-cost carriers. The easyJet and West Jet venture has proved successful, enabling travellers to buy a single ticket that connects a partner carrier to their long-haul flight.  Low-cost players are now breaking into the hub and spoke model which has previously been the domain of the bigger players.

How businesses can manage this

Airlines have had to contend with the decline in consumer loyalty; as the division between traditional players and new entrants closes, so the polarisation of customers has narrowed. With less distinction between propositions, it’s trickier to retain customers, who in turn opt for convenience and cost and are pretty much agnostic to airlines. The onus is now on carriers to build loyalty through enhanced propositions, and expanding revenue growth through add-ons, such as car parking and hotel and transport bookings.

It’s understandable that the fall-out of the Monarch crisis will have made some businesses jittery about how their people travel.  We’d expect to see a short-term uptick in legacy carriers, as companies opt for trusted, dependable options.  We have short memories, though, and pretty quickly, cost will drive people back to low-cost.

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

Between hurricane Harvey and Irma, states in the US have been truly ravaged by disaster. The effects of destruction have now left long lasting marks on local economies and the performance of markets, among many other things.

OPEC, for example, was severely impacted by the hurricanes, as we saw demand pitfall despite continued production and refining. Goldman Sachs stated that both Harvey and Irma will leave a huge dent in the oil market, leading to a global reduction in consumption of oil by 600,000 bpd in September.

We asked Finance Monthly’s expert contacts what they made of the situation, and have heard Your Thoughts on the overall impact of hurricanes on oil markets and beyond.

Nathan Sage, Market Analyst, PhillipCapital UK:

Hurricane Harvey was one of the biggest storms to hit the gulf coast in a decade with the total damages now estimated at upwards of $180 billion. The category four storm made landfall in Texas as it peaked in intensity and now holds the record for the wettest tropical cyclone to hit mainland US states. The significance of its landing is important as Texas and States along the gulf coast are a major refining point of crude oil and are responsible for around 12% of the country’s refining capacity.

Before Harvey hit, traders were already nervous, and crude, both Brent and West Texas Intermediate, ground lower until dropping as Harvey made landfall. The major moves were in the markets for distillates especially in the gasoline market which gained over 16% as fears of a fuel shortage spread across the state and surrounding areas.

The low of oil was a good buying opportunity for traders as the drop in refining would ultimately lead to higher inventories but the lasting effect of the rise would only be temporary for traders with a moderate outlook. Brent and WTI have both added 3.74% this week and 7.5% since its low last week. The short term effects of Harvey have already been seen in the data with initial jobless claims rising 62,000 in the week to September 2nd totalling 298,000 way above the expected 245,000.

The lasting effects of Harvey from the oil industry’s point of view has now largely worn off with pipelines and refineries coming back online earlier this week and business is mostly back to normal. In the same breath, traders will now be focussing on Hurricane Irma which has already devastated most of the Caribbean and is expected to make landfall this Sunday. Florida has less of a significate for oil markets but insurance companies will weigh on US stock markets as the costs from both Harvey and Irma start to mount. The full extent of the losses are yet to be seen but some are expecting the most Harvey-exposed insurers to take an earnings hit of around 25-30%. It’s no surprise that heading into the weekend risk appetite has waned and we can see US markets edging lower on the open.

Longer term and away from the storms, the overarching themes in oil markets remain focused on the global supply glut. Russian finance minister Anton Siluanov has said that Russia would benefit from extending its agreement with OPEC to limit global supply and said the benefits would extend to “everyone involved”. Without an extension of the agreement and if the world’s largest oil producers were to have full autonomy on their own output it would likely lead to a huge correction lower in prices. This would be especially true, as the recent higher oil price has allowed shale producers to become more efficient and are now able to operate at a lower breakeven point than before.

Fiona Cincotta, Senior Market Analyst, City Index:

The markets are breathing a sigh of relief as the trail of devastation left by Hurricane Irma was not quite as bad as was initially feared. Whilst Florida is still receiving a pounding from the now Category one storm, notably Miami managed to dodge the most dangerous part of the storm. So far news of catastrophic damage hasn’t come through, which is a promising sign that the markets are focusing on.

As a result of the severe but not catastrophic Hurricane Irma the dollar index enjoyed its biggest 1 day jump in 10 days, gaining 0.5% versus a basket of currencies. Meanwhile the Dow Jones futures surged over 100 points, whilst the S&P 500 futures were also pointing to a positive start for the index.

The markets were on edge in the days leading up to the hurricane given the difficulty in assessing the financial impact of natural disasters. However, although the initial assessment is that the impact of the storm is not as bad as first feared, we still expect some evidence of economic damage from this hurricane and hurricane Harvey to feed through to the economy in the form of weaker economic data such as labour market numbers, economic growth and retail sales. Therefore, investors will be paying particular attention to Thursday’s retail sales numbers. Significantly weaker than expected data could weigh heavily on sentiment.

The other point to keep in mind is that the economic impact of hurricanes tends to be short lived and often the rebuilding effort offsets the damage the hurricane caused to the economy. Therefore, if economic data is slightly weaker, this should only be a blip rather than the start of a new trend. Federal Reserve Official Dudley confirmed this last week by saying that he didn’t expect the outcome of Hurricane Irma to impact on the monetary policy outlook.

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

Reports indicate that in recent months, the US dollar rally may be more of a hindrance to emerging market equities than to currencies themselves. The current relationship between the US dollar and emerging market peers, according to Bloomberg, isn’t conforming with conventional wisdom.

Looking at the performance of the dollar, and compared with market equities and currencies, Finance Monthly has heard from a number of sources, in the US and beyond, on the growing relationships between these indices.

Mihir Kapadia, CEO and Founder, Sun Global Investments:

A US dollar rally may be a bigger hassle for emerging-market equities than for currencies these days.

The US dollar has had a rough year till date, having lost nearly 12% of its value this year. This is largely attributed to doubts over the Trump administration’s ability to achieve healthcare reform, tax cuts and infrastructure spending. Confidence on the US administration’s ability to deliver growth-boosting fiscal policies is low, while the positive political and economic situation in Europe has further added to the pressure on the US Dollar. It’s been a reversal of fortunes of sorts as there are somewhat reduced expectations for tighter monetary policy out of the Federal Reserve in the US and higher expectations for more tightening out of the European Central Bank.

The weaker dollar probably does not unduly worry the President as it boosts the US’s export competitiveness. Trump probably views it as a positive as it will boost the US industrial heartlands.

However, this has been a negative factor for overseas investors in US assets, increasing their costs or reducing their profits. The slump in the dollar has already dampened the spirits of currently high performing Asian equities as there is an increasing fear that the weaker dollar could make Asian exports less competitive over time.

A weaker dollar has helped EM bonds as fears that an accelerated monetary policy tightening from the Fed Reserve would put pressure on the dollar-denominated debt of Asian companies, have receded. However, these taper tantrum type fears could represent a risk factor as EM equities are highly correlated with US equities.

Daniel Harden, Head of Desk, Global Reach Partners:

The strengthening US Dollar does appear to be having a proportionately greater impact on emerging market equities at present. The key reason for this is that many emerging economies are pegged to the Dollar so when it goes up in value their own currency follows which can have a detrimental impact on exports. This can also effect emerging market companies with offshore earnings and make foreign debt repayments more expensive.

That said, the US Dollar is still in a relatively weak position and current events suggest it may remain so for the foreseeable future.

The currency had hit a 15 month low against the Euro. It then rallied following the release of an upbeat Non-Farm Payroll (NFP) report earlier this month which highlighted the creation of 209,000 jobs, a figure well ahead of expectations. It also reported a dip in unemployment to 4.3% which matches a 16 year low in the US.

The NFP Report has now provided the market with a good selling opportunity on the US Dollar. It also remains down against all G10 counterpart currencies, impacted by low inflation and interest rate differentials.

Moving forward you cannot ignore the on-gong political situation where there are serious questions of confidence over the ability of the Trump Presidency to deliver a longer term economic boost. While Mr Trump presided over an initial bull run on the Dollar, this appears to be over and there are now emerging signs that the market is losing confidence in both his administration and the Dollar.

The developing situation in North Korea, what effect this will have on the Dollar and the wider economic impact which could result from an escalation in hostilities is a big unknown variable in this whole equation. It is often the case that events which threaten global security will strengthen the US Dollar which is seen as a safer investment.

Looking at the bigger picture where we have an increasingly dovish FED, operating under an unpredictable and sometimes volatile President, with interest rate differentials against it and falling inflation, there is a strong case to suggest the dollar sell off will continue. The potential impact, including the effect this could have on emerging market equites, may therefore be over-stated.

Josh Seager, Investment Analyst, EQ Investors:

Emerging markets are especially vulnerable to a strong dollar when there has been lots of flows into emerging markets prior to the dollar strength. This is what happened prior to the Asian crisis and the taper tantrum. Generally, lots of money flows into emerging markets because of depressed returns elsewhere, imbalances build (for example an over-reliance on foreign funding), the dollar gets stronger and then investors take out their money at the same time causing a big sell off.

There are few signs of such a build-up of capital. The MSCI EM index has underperformed the MSCI World index by 50% over the past five years and flows have been coming out of emerging markets as a result. As a consequence, we aren’t so worried about a US Dollar related emerging market sell off ourselves.

The dollar is negatively correlated with commodity prices so if strong dollar causes weak commodities this can hurt emerging market equities. Emerging markets also benefit from global growth so if the dollar is strong and trade is good there is unlikely to be an issue.

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

Last week Governor of the Bank of England and Chairman of the G20's Financial Stability Board, Mark Carney said London is “effectively, the investment banker for Europe.”

Many believe companies and financial institutions should move their trading to the continent, while others believe this is non-sensical given London’s capital position globally and in the markets. Some companies, such as Goldman Sachs, HSBC and UBS, have already confirmed the eventual moving of staff and trade abroad, once the UK leaves the EU.

At the same time, the UK is faced with a lack of skilled labour, and due to the uncertainty surrounding changes in immigration law and the movement of employees or recruitment across the continent, bosses of big companies such as Barclays are calling for the freedom to recruit freely outside of the UK.

This week Finance Monthly hears Your Thoughts on the moving of business to the EU post-Brexit, and below are some comments from reputable sources within the business sphere.

Bertrand Lavayssiere, Managing Partner, zeb:

For those institutions with EU clients in their roster, it is more than likely that they will have to move to the EU post Brexit. However, there are a few buts…

One of the critical aspects is ‘passporting’. At present, banks can operate within the EU under UK regulations with relatively light approvals required from local regulators. This is of key importance for large sectors of the industry, such as asset management, where more than a trillion GBP is under management for EU-based investors, corporate lending, reinsurance and securities trading platforms, to name just a few. If this is maintained - which seems unlikely today - then the need to move is not crucial.

The long-standing cooperation between EU and UK regulators could ease some of the pain if governments agree that joint efforts to maintain alignment will help the overall goal of financial stability. Furthermore, many of the pertinent regulations are global anyway - those from the Basel Committee or the IASB, for example.

With regards to the London market, there are a number of platforms for specific product lines (foreign exchanges, swap contracts, equity derivatives, etc.) to facilitate compensation, settlements of trades among market players, and volumes to ensure liquidity. In simple terms: London is the place for such platforms. Disagreements have already taken place with regards to whether those platforms could remain in London. If the decision is yes, it will be business as usual. If, however, the answer is no (the most probable outcome), then the trading platforms and back offices of stakeholders have to move. This includes the day traders and market makers who are crucial for the liquidity of the market.

There is a whole list of further variations on this issue. But all in all, it is essential that a financial institution with clients based within the EU considers its strategic options as of now. Establishing a presence in the EU needs at least 18 months from a regulatory stand point. As many EU regulators require a fully-fledged decision making unit through proper governance, the analysis of the changes in delegation of authority schemes and the assessment of potential human resources impacts must be considered early on in the process.

Paramount in the decision-making process should be the institution’s business potential, to follow their customers, and ongoing requirements, rather than solely the regulatory aspects.

Ben Martin, Founder, The Brexit Tracker:

Moving your business away from the UK is a major undertaking. Perhaps you were considering this prior to the Brexit referendum or more likely, you believe leaving the EU will make your business operations untenable. But before taking action, we suggest you calculate and monitor the financial impact of Brexit on your firm and compare this to the emotional ‘pull’ of moving to the EU.

Here’s our 5-point plan:

1. Calculate how Brexit has already impacted your firm. From over 390 economic indicators we’ve reviewed, the biggest market-related change has been GBP Sterling dropping 15% (now 12% weaker.)  How has this impacted your business?
2. Continually assess and record how new facts surrounding the UK/EU relationship will impact your £ calculations
3. On relocation – consider how you will continue to serve your UK customers.  With a weaker GBP, your UK sales are likely to be worth 12% less
4. A move will impact your business banking.  UK banks/lenders will need convincing of the merits of a move (and the enforceability of their security) to continual their financing
5. Consider your existing and new competitors – will a move provide an advantage to you or them?

In summary, firms need the full “Brexit facts” before undertaking a move to the EU – as the facts are in short supply, they should start their own Brexit monitoring system.

Oliver Watson, Executive Board Director for the UK and North America, PageGroup:

As is to be expected, multinational businesses are more cautious than UK SMEs when it comes to hiring in post-Brexit Britain – and, as I see it, there are two reasons for this.

With a variety of other investment opportunities elsewhere across the globe, large international businesses – who are under no obligation to invest in the UK – have the ready option to divert investment to other more certain markets. As a result, their talent acquisition will naturally become focused in a different direction or geographical location.

However, where SMEs generate the bulk of their revenues in the UK don’t have that option – they just have to get on with it. This means while multinationals are feeling cautious about UK hiring, for SMEs it is often business as usual. This is a pattern we’ve seen time and time again in the face of uncertainty.

Mary Wathen, Partner and Head of Agriculture and Rural Affairs, Harrison Clark Rickerbys:

The Agricultural sector relies heavily on EU workers. Around 15% of the total workforce is from outside the UK. The uncertainty around the status of EU workers threatens to hit the agricultural sector hard if the status of EU workers isn’t clarified.

Despite the uncertainty, there are steps which savvy agricultural employers can take now to minimise the disruption. Taking action ahead of time will help maintain the flow of workers for each harvest, protecting both the business and the livelihoods it supports.

Employers need to ask themselves some key questions about their workforce:

• how many migrant EU permanent or seasonal workers do you have?
• how many are key staff, responsible for driving production, harvest or sales?
• how many have been in the UK long enough to acquire permanent residence?
• How many of your workforce are committed to remaining in the UK?

For smart agricultural employers, the so-called crisis provides an opportunity to build their employer brand.  Employers are enhancing their working relationships with key employees who meet the requirements for permanent residency and want to remain – introducing them to specialist agricultural immigration advisers and supporting employees through the application process.

But this isn’t the solution for the seasonal workforce shortage. The fruit-farming industry employs 29,000 seasonal workers, who go back to their home countries after six to nine months in the UK. They won’t be eligible to apply for permanent residency. Virtually all of them come from the EU, mainly Romania and Bulgaria, but also Poland and Hungary. If the Government ends freedom of movement, a return to the old-style permit scheme seems the only option to protect the harvest and UK agriculture.

Richard Thomas, Employment Partner, Capital Law:

One key issue for the forthcoming Brexit negotiations will be the issue of EU Immigration following our exit from the UK. There is no doubt that the UK Government will seek to put in place some form of “controls” on EU immigration after the UK leaves the EU but it is entirely unclear as to what form these controls will take and/or who they will apply to. Will the controls apply to unskilled, semi-skilled or skilled EU migrants? Who makes the decision as to what constitutes a semi-skilled or skilled role? Is there any appeal against this decision?

It has also been suggested that the UK will allow all current EU nationals working in the UK to remain in the UK after the UK leaves the EU but it is not clear whether this will be indefinitely and whether it will apply to non-working spouses and/or children. Ultimately no promises have been given and it is a matter for negotiation between the EU and the UK, although it is hoped that the issue will be resolved quickly.

In addition, in April 2017 the UK Government introduced the Immigration Skills Charge imposing a charge of £1,000 per year for employers sponsoring a worker from outside the EU. It is quite possible that the UK Government will extend this charge to EU workers who do not have rights of permanent residence once the UK leaves the EU.

Given the current uncertainty and potential cost the best advice to SME’s with EU workers who have been working in the UK for at least 5 years is to get them to make an application for Permanent Residence as this should provide a guarantee of an individual’s continuing right to work in the UK.

However, individuals making the application will have to complete an 85-page form and provide huge amounts of supporting documentation confirming what they have been doing in the UK for the last 5 years. This is an arduous process to say the least but there appears to be little alternative as (unlike some EU countries such as Germany) the UK has no central register of the identities or even the numbers of EU citizens currently working in the UK. The Home Office has stated that it is looking to use an online application process but there does not appear to be any additional funding for this.

Katherine Dennis, Associate in the Employment, Pensions and Immigration team, Charles Russell Speechlys LLP:

The EU referendum has caused a lot of uncertainty for EU nationals and their employers as to what their position is in the UK and what will happen when the UK exits the EU.  This is clearly an important issue for many SMEs, especially as sponsorship of overseas workers through the UK’s points-based system becomes increasingly expensive.

Importantly, free movement will continue to apply until the UK formally leaves the EU. This process was started on 29^th March 2017 by the UK government giving notice under Article 50 of the EU treaty. There will now follow a two-year negotiation period, which could be extended by agreement of all member states. The earliest the UK would leave the EU is therefore the end of March 2019. Until then, EU nationals are still free to work in the UK.

The UK government has clearly stated that it wishes to control migration from the EU, while still attracting those whom it considers have the most to offer the UK. It is highly likely therefore that the UK will introduce measures to restrict free movement. It is also therefore likely that it will be harder for employers to recruit EU nationals and it may be difficult for EU nationals to work in the UK on a self-employed basis.

At the moment, there is no firm indication as to the type of system which might be put in place and much depends on what the UK government is able to negotiate with the EU.

Possibilities include a new work visa system for EU nationals or expansion of the current points based system, which enables employers to sponsor skilled workers in the UK (although it is currently limited to professional roles at a certain salary). It is unlikely visas will be required for short business trips. Other possibilities include retaining limited free movement with measures to cap numbers, such as quotas or temporary ‘cooling-off periods’. Concessions may be made for sectors where there is a recognised labour shortage.

The UK government has stated that it intends to consult with businesses and communities to obtain the views of various sectors of the economy and the labour market. It is therefore crucial that employers and business-owners who are concerned about the impact of Brexit on their workforce respond to the government’s consultation when it is issued.

In the meantime, EU nationals who are eligible to apply for permanent residence (i.e. those who have been resident in the UK for five years or more) or British citizenship should do so now to ensure their continued right to work in the UK.  EU nationals who have not reached the five year point when the UK exits the EU are in a more vulnerable position.  It is sensible for those EU nationals to apply now for an EEA Registration Certificate, which confirms that they are currently living and working lawfully in the UK under EU provisions, in case this fact becomes important in any future transitional arrangements.

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

For months, businesses, consumers and authorities in both the UK and the EU have been waiting for the triggering of Article 50, which initiates the Brexit procedure. However, the lack of details due to the mantra "no negotiation without notification," means that uncertainty has likely been the most mulled over word in media right now.

Tomorrow is the due date for the UK to initiate the process, and the impact will be both immediate and long term, with lengthy negotiations to take place on the back of already what seems lengthy planning time. Finance Monthly has this week heard from numerous sources across the UK, from experts and specialists in several sectors, to businesses forecasting the opportunities and risks, on what might be once Article 50 is officially triggered. Here’s Your Thoughts.

Markus Kuger, Senior Economist, Dun & Bradstreet:

Theresa May’s plans to start Britain’s withdrawal process from the EU will set off a series of tough negotiations. The complexity of Brexit poses unique challenges, with overall sentiment and fiscal numbers continuing to paint a mixed picture: although forward-looking indicators are still reasonably strong, they have deteriorated since the start of the year and, simultaneously, inflation has registered its highest reading since Q3 2013. In this vein, it’s far too early to realistically assess the potential political and economic impact of Brexit – a real bone of contention will be the controversial departure bill, which may well see the UK pay in excess of £60 billion to officially leave the EU. With negotiations about future EU-UK trade relations expected to take longer than the two years available, it is likely that an interim agreement will have to be struck, and we do not expect full independence to be secured until the 2020s at the earliest.

The public’s interest will focus on what kind of deal Theresa May can strike with the EU, especially as the President of the European Commission, Jean Claude Juncker, has reinforced his position that the UK will not be able to ‘have their cake and eat it’. The EU still seems to have the upper hand in the upcoming negotiations, but a disorderly Brexit would also hurt the remaining 27 members of the bloc (although not as badly as the UK). From an economic perspective, the UK is actually performing just as well as it has done since before the country voted to leave the EU, but it’s unlikely that this strong growth will continue throughout 2017. Politically, events in Europe over the next few months could have an impact on negotiations; elections in France and Germany, should they unexpectedly go the way of anti-EU parties, will likely destabilise the two powerhouses’ control over the European bloc. For now, the priority is to start developing official plans for the UK’s departure from the EU. Businesses must monitor the uncertain and fluctuating economic situation that is to be expected over the next few years, and mitigate risks as best they can.

Mark Billige, Managing Partner, Simon-Kucher & Partners:

After the referendum, we have already seen a notable impact on prices, with the inflation rate before the vote hovering just above 0% but now nearing 2%, the official target rate of inflation in the UK. More price rises are imminent with Article 50 being triggered.

Research by Simon-Kucher shows that the severity of price increases passed to consumers has been gradually rising since the referendum. This means that as we move closer to the point at which Theresa May looks like she will trigger Article 50 at the end of this month, companies look set to pull the trigger on increasingly significant price hikes.

But businesses need to be careful. For instance, a survey conducted by Simon-Kucher shows that level of concern about price increases resulting from Brexit does vary within the UK, with 97% of Remain voters concerned about price increases, versus 57% of Leave voters. The research also shows that holidays and grocery bills are feared as the most likely culprits to face price increases. Many people, especially those who support Leave, take a dim view of companies attributing price rises to Brexit.

Chris Baker, Manging Director, UK Enterprise, Concur:

I think businesses have been pretty clear right from the outset about the deal they want with the EU once we're officially no longer part of the 'club.' What will be interesting is how corporate behaviour changes over the course of the next couple of years. We already know from reports that many are stockpiling cash rather than investing, but a new development is also emerging. Many of our customers are reviewing their supplier strategy with a view to forming partnerships with UK companies in order to reduce Brexit risk and turbulence from the FX markets.

Such a strategy makes sound business sense, but longer term if the UK withdraws into itself commercially it will be much harder to forge trade agreements with China, India, the US and of course the EU. To get the best deal we have to be seen as a global economic force, not an island. Businesses need tangible incentives that will give them confidence to invest both in the UK and abroad.

Michelle McGrade, Chief Investment Officer, TD Direct Investing:

Rising employment continues to propel the Eurozone region towards 2% growth. Add in inflation and operational gearing, and growth at a company level starts to look interesting. There are some selected good structural growth stories across Europe. No one knows how key political events are going to transpire, and what the stock markets’ reaction to those events, or indeed the effect on the euro, will be. As investors, it is better to stick to what you do know and focus on a long-term investment horizon.

Rob Halliday-Stein, Managing Director & Founder, BullionByPost:

We've got a lot of uncertainty at the moment and when you look at things and people tend to see gold as a good thing to hold during those times and if you look at Brexit, for example, even though it has not actually happened yet, that could still have a big impact as far as business is concerned. Our most profitable times are always during times of uncertainty.

As a business, somewhat sadly, we always tend to do well at times like that. No one really knows how this Brexit is going to play out over the next two years once Theresa May pulls the trigger to trigger article 50. There are a lot of unanswered questions and a long road to go down. We don’t yet know what is going to happen to UK and EU nationals working and living abroad and those from other European countries that are living and working here in the UK. Indeed, as part of our business, we do employ a few EU nationals so the future for them is somewhat uncertain.

And then there’s the bill for leaving the EU and the estimates are that that could come to around £50bn for our share of liabilities. What will happen to the EU laws that we have been bound by for more than 40 years? Are there similar bills going to have to be rushed through parliament? Theresa May is really going to have to tread carefully here to get the best deal for us upon leaving the EU – otherwise this could end up costing the country dearly.

For me balance of payments is a big issue for then UK right now. We need to be selling more goods and services than those that are bought in from elsewhere. The UK’s 2016 international trade statistics released this month show the deficit of Britain’s balance of payments increased by nearly £10 billion, and is currently just short of £40 billion. This is something that simply needs to be addressed when we go it alone.

However, this is all good for business. With all the uncertainty in the world people still know there's a very strong case for holding gold as part of their portfolio. It will, at the very least, keep its value and preserve wealth. It may spike much higher than that at points of crisis and then it tends to bounce back a bit.

Mark O’Halloran, Coffin Mew:

Over the next two years the ‘Great Repeal’ will become as a common a phrase as ‘Brexit’ has been in the last two. But Great Repeal Bill is misleading as the government’s key task will be enacting legislation, not getting rid of it.

The adoption of EU legislation is not going to be a smooth process. It is going to be complicated by an expectation that negotiations between the UK, the EU and its member states won’t reach resolution till near the end of the two years, potentially leading to a mad rush to get laws adopted.

Patent law is a prime example of an area that is going to be of shared concern for many areas of UK industry going forward. The Government still appears eager to move forward with both a unified European patent court and a unified European patent, and there is logic for this. British businesses will want the security of knowing that their patents are protected as widely as possible, without the hassle of having to prepare and file applications in multiple countries.

As it is, it is far more expensive to protect designs through patents in Europe than in the US and the new unified European patent court and a unified European patent is aimed to address this. The price we may need to pay, however, is continued EU political influence through, perhaps, the involvement of the ECJ. Despite Brexiteer assurances, we will not be able to have all our cake and eat every morsel of it.

There is much uncertainty in how the extraordinary challenge of Brexit will be handled; and two years for global events to take unexpected turns. At first, don’t expect all that much to change. Theresa May’s Government will be closely watched and scrutinised over the next two years and their remit will be to simply ensure we have working legislation in place for us officially leaving. It is once this formal process is complete that the fireworks will fly.

Owain Walters, CEO, Frontierpay:

We expect to see some initial volatility or “noise” in the market once Article 50 is triggered at the end of the month, however, there won’t be any significant developments until we learn more about the detail of the negotiations and any deals become clearer. Our advice to businesses is that they take advantage of the remaining two years in which we will have access to the single market to prepare for life outside of the EU. Laying the necessary groundwork to ensure that they have access to international markets and currencies upon our departure is the best way for businesses to ensure that they are successful post-Brexit.

Alex Edwards, Head of the dealing desk, OFX:

When Article 50 is triggered, it will doubtless have an economic impact. But although the currency market is often the first to react to political developments, we’re unlikely to any significant moves on the day itself.

When the Prime Minister first announced that she would trigger Article 50 on 29th March, the pound was quick to fall against the US dollar. In the end, this was only a minor blip in sterling’s recent gains – on the whole, traders have been focusing on positive economic data from the UK, along with rising headline inflation and a hawkish stance from the Bank of England.

Investors know that Article 50 is coming, and to a point, the market has already priced in a lot of the potential negatives that could arise around the coming Brexit negotiations.

In the longer term, the strength or weakness of the pound will largely depend on the progress of EU negotiations, rather than monetary policy. If negotiations are seen to be going well for the UK, then this will undoubtedly be positive for sterling, particularly against the euro. If they are perceived to benefit both the UK and EU, then this will still be favourable for the pound, as it would bring some certainty to the market. After all, it’s traditionally political and economic certainty that’s good for a country’s currency.

Failed negotiations, you won’t be surprised to hear, will not be positive for the pound. Any negotiations will also need to be voted on, certainly on the European side, and possibly in Parliament here. Like any vote, if we know it’s going to be tight, this creates uncertainty – not good for either the pound, or the euro. On the other hand, if the outcome is predictable, then the market reaction will likely be mild when the deal is passed, perhaps even supportive for the pound, as investors buy the fact rather than the rumour.

Overall though, there are still many unanswered questions about what shape these negotiations will take. It’s uncertain, and we know what uncertainty means for a currency. We’re already seeing this affecting exchange rates – the pound has been at historic lows since the Brexit vote, and has been under and close to 1.20 against the US dollar for some time.

When Brexit negotiations begin, clarity should start to be restored. As such, there may be some positive surprises in store for the pound over the next two years – the risk, as they say, could well be to the upside.

Robert Hannah, COO, Grant Thornton UK LLP:

More than nine months after the referendum result, the lion’s share of the government’s and the media’s attention is still being granted to big business brands. However, we know that mid-sized and smaller businesses are the strongest growing sections of the business world and form the backbone of Britain’s economy as significant employers and economic contributors, with strong growth projections.

Brexit should be seen as an opportunity for these businesses to open up to new, more competitive, markets and the catalyst for exploring how we unlock overseas opportunities beyond the EU.

Seeking out areas where good practice is already in place and learning from it, is key to this. A good example is Scotch whisky, a leading UK export enjoyed globally worth £4bn a year. The sector has had an excellent champion in the Scotch Whisky Association, who work hard to ensure fair access across all markets and the industry, and has built an enviable distribution network throughout the globe.

If the British government is serious about getting match fit for the new global economy, they could do a lot worse than sitting down for a dram with Scottish whisky producers to understand how we can get our mid-sized and smaller businesses set up for success.

Rob Douglas, VP of UK and Ireland, Adaptive Insights:

Although the triggering of Article 50 was arguably inevitable it is still likely to cause fluctuation on the global markets and businesses need to be prepared. At the very least, businesses are at risk of the impact of currency fluctuations, but they also face years of negotiations and debates, the outcome of which will have a knock-on effect on finances.

Above all else it is important for finance teams to carve out a degree of stability for their business. The best way to do this is to take an active approach to planning and ensure that they are as agile as possible to respond to wider economic changes. For example, ‘what if’ scenarios that model currency changes can give the finance team and business greater insight into where they may see hikes in costs, which, if not adequately prepared for, could be fatal to a business.

What’s more, finance teams also need to be sure they are considering the entirety of the business. For example, business drivers are not exclusively financial. Non-financial KPIs need to be worked into models if the team is to get an accurate view of the business both now and how it will fair in differing economic environments.

Article 50 undoubtedly spells a volatile time ahead for the UK business community, but successful corporate performance will depend on ensuring the business is as agile as possible. A finance team needs to have its hands on all the business levers, understanding how it can respond to changing market conditions to preserve–and even enhance–the health of the business. Done in the right way, a finance team will cushion its business when times are bad and make it thrive when times are good. It is only with an accurate view of the business, being prepared and predicting possible threats and opportunities, as well as modelling these across the whole enterprise, that a finance team can truly steady the ship in the tumultuous post-Brexit world.

James Roberts, Director, Sanctuary Bathrooms:

As an independent business owner who deals internationally and domestically, we’ve seen rising costs from suppliers since the announcement of the Brexit vote. The rise has been on average around 7%, but as the dollar and euro start to level out, this should hopefully reduce. This has impacted UK consumers, as we’ve unfortunately had to factor this increase into our prices.

One unseen benefit of this upheaval has been an increase in orders from other EU countries, who are taking advantage of the weak pound to grab themselves a bargain.

Frustratingly, we’re still in the dark in regards to the full impact of Brexit, but early indicators are a mixture of positive and negative. It’s difficulty to say with any certainty what post-Brexit Britain will look like as it’s uncharted territory.

Before the referendum last June, many economists produced gloomy forecasts which have since been proved wrong. Consumers' confidence has not suffered, and, by and large, things have gone on as before. Personally, we are quietly confident that our business may benefit from a boost in EU orders in the near future which will sufficiently counter any losses in sales domestically.

Michael Hatchwell, Director, Globalaw and Senior Corporate lawyer, Gordon Dadds:

When the UK Government triggers Article 50 there will be no immediate changes in law or treaties; therefore a trigger of Article 50 will not in itself have any economic effect. Markets may experience some movement, but there will be no immediate effects as the United Kingdom remains part of the EU until it leaves.

Once triggered, the UK will have two years to agree not only the exit terms but also the principles for future relations between the EU and the UK. When one considers the vast array of issues to be thought through and covered, bearing in mind that we have a history of some 40 years of integration, and that major issues such as financial passporting and access rules for UK and EU citizens (both ways) are but the tip of a huge iceberg, it is not surprising that many are of the view that there is not much chance of negotiations concluding in two years.

Two years from the trigger of Article 50 the EU treaties will cease to apply, unless that period is extended by the European Council with the agreement of all 27 other member states.

If no Free Trade Agreement (FTA) is agreed and two years expire without extension, because the UK is a member of the World Trade Organisation (WTO), the EU will treat the UK as it does other WTO members, such as Brazil, Russia or the USA. The same EU tariffs will have to apply to the UK because it will be illegal, absent an FTA, not to do so.

Given the volume of UK/EU commerce, this fallback position will not be welcomed by either side.

Ultimately, because nothing happens immediately and because nobody knows what the outcome of negotiations will be as no country has previously triggered Article 50, the only certainty over the coming 2-3 years is that there will be uncertainty.

This is problematic for those making key investment decisions, as well as in terms of important choices that need to be taken by individuals and companies whose lives and business are entirely intertwined with the EU.

So, can big business afford to wait? Absent some clear indications on key issues, it is likely that businesses will need to anticipate the prospect of trade between the UK and the EU not remaining as easy as it is now. If moving certain functions to another EU location now resolves that issue, then why would such a step not be taken? Of course it may prove to be an unnecessary step, but the risk of not acting may not be acceptable. The decision will of course depend upon a company’s particular trade and issues.

Further, companies are aware that it is unlikely the 27 other member states will make negotiations easy for the UK as they do not wish to encourage any other countries to leave. They may also want to attract as much business as they can from the UK to their own states and play on the uncertainty that will exist.

As regards rushing into new treaties with non-EU countries such as the USA and China, the EU has made is quite clear the UK cannot do so until it has left the EU, creating a potentially longer period of uncertainty before treaties with our key trading nations can be agreed.

It is therefore quite likely that if Brexit does prove to be of benefit to the long-term interests of the UK, it is unlikely that the short-term unavoidable and inevitable uncertainty affecting so many key critical issues will not have a real and negative short-term impact on the UK economy. Put another way, it would be quite surprising if it did not.

The government and the Bank of England will have to act carefully and decisively to ensure that they make the UK a seriously attractive place to do business to counteract the uncertainty that will exist.

Gary McIndoe, Latitude Law:

When assessing a business's needs from an immigration perspective, Brexit creates the potential to incur real financial burden. Changes to existing practices need to be identified and managed as soon as possible, both to minimise costs and to streamline processes (and perhaps even achieve financial savings). As a starting point, business should assess their exposure to the impact of Brexit - some businesses will employ a far higher proportion of migrant workers than others, particularly if in a sector such as construction, hospitality or manufacturing. Review your workforce now and determine what proportion of current employees might be affected. Your business can take steps now to calculate and secure staff retention.

The next step should be to limit the immediate damage - we do not know whether the UK government will guarantee the rights of EU workers already in the UK, but we can be reasonably confident that some sort of provision will be made for those who already have employment, particularly if long-term. Speak to your existing workforce about their feelings towards Brexit, they might need guidance on securing their position. Employers can run workshops for staff members to discuss their eligibility for securing confirmation of residence rights. While this can incur an initial financial outlay, staff retention rates may benefit from a proactive approach. Many EU nationals do not hold a UK-issued residence card, but it would be a good idea to apply for one now. In some cases, a permanent right of residence can be confirmed immediately, but for those who do not satisfy those requirements, a time-limited card from the UK government is likely to give the best protection and offer a level of reassurance for employer and employee alike.

Once you have secured your current workforce, you should consider future recruitment needs, including where your staff are currently recruited from and how might the end of ‘free movement’ affect your hiring strategy. Depending on the scheme on which the government chooses for future EU migration, large-scale recruitment from specific countries may become costlier and more complicated. Familiarise yourself with the schemes applicable to non-EU migrants; formal sponsorship might never be a requirement for EU nationals, but knowledge of more flexible measures both past (such as the Seasonal Agricultural Workers Scheme) and present (e.g. Tier 5 Temporary Workers) could be of use to your business as Brexit negotiations continue.

Finally, you need to prepare your HR team. This will depend on the measures introduced when Brexit takes effect, but your HR team’s processes need to be checked to avoid illegal working may need to change. Consider reviewing your personnel files now to update ID documents and best protect yourself from illegal working penalties in years to come. Future document requirements for EU nationals are not yet known, but reintroducing document checks (or re-familiarising your team with the requirements) at an early stage might help you to transition to a more robust system required from 2019, and save costly penalties in future.

Declan Harrington, Financial Advisor, Savage Silk:

We expect that the economic and social effects of Brexit won’t become completely clear for at least six years. During this period of adjustment, we believe that the majority of companies and even individuals will see very few significant changes in their circumstances.

The only certainty is that fruitful financial opportunities will still exist once Article 50 has been triggered, and businesses should not use Brexit as an excuse to shy away from jumping on them. We are already working with companies and individuals to help them identify these opportunities and take advantage of very benign investment and credit conditions.

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 UK mortgage lender Halifax, February saw the lowest increase in house price since July 29013, going up just 5.1% YoY. This means that house price inflation has halved over the course of 11 months.

Halifax’s housing economist, Martin Ellis says this is down to a sustained period of house price growth in excess of pay rises making it more and more difficult for many to buy a home. He says that this, alongside a reduced momentum in the job market and less consumer spending will equate to a further slowdown in inflation rise throughout 2017.

This week Finance Monthly has heard from a number of sources in the housing markets sector, to see what their thoughts are on the slowdown, and whether indeed more growth curbing is to occur in the coming months.

Neil Bainbridge, Ashcox & Stone:

Why is it slowing down? The key factor in this is uncertainty and it's slowing in some areas and not others. In Swindon, we were looking at six per cent average growth in 2016 in house sales, this year it's predicted to be around four per cent but we are only in March. So far, we've had a strong start to the year and that shows no signs of slowing down. I suspect we will be between five to six per cent by the end of the year.

We have to remember that our economy's growth is consumer led and consumer confidence is attached to our love of property and if people stop having that confidence, spending will slow, credit will slow and consequently growth will slow. it's a fragile position we are in when our economy's growth relies on the confidence of the average consumer.

Things could start slowing as people take stock and think, "if I don't sell my house or buy a new home this year, what's the market going to be like next year? Am I better off sitting tight?" Will they wait for decisions regarding Brexit, interest rates and a wealth of other economic uncertainties?

As a non-Londoner, it seems to me that that market is still very much an 'anomaly' with outside investors with strong currencies against the pound, being able to buy more for their money. However, uncertainty over Brexit may cause those people to think twice before rushing to buy that investment property if concerns over jobs being relocated overseas are realised.

Less of an impact but still one to watch is the trans-Atlantic effect of the American dollar as they consider a rise in interest rates in the USA and that's likely to have a knock-on effect on economies around the world, including here in the UK.  Interest rates in the UK are likely to rise at the end of 2017, beginning of 2018 to counteract the inevitable rise in inflation, caused by the increase in food and fuel prices that we are already beginning to see. These are the sorts of headline costs that most affect consumer confidence.

Another factor to bear in mind is the massive effort by the government to put the brakes on the buy-to-let market which is causing a huge number of potential landlords or investors to avoid investing in the property market. But that's a whole other debate.

Professor Ivan Paya, Lancaster University Management School:

The results of our forecasts suggest that house prices in the national and all regional property markets will grow this year. For the UK national market, the considered forecasting models predict a slowdown in the rate of house price inflation to 3.5% in 2017 (we note that the value of the corresponding statistic in 2016 was 4.4%). Although house prices are expected to grow at a lower rate than last year, the two main factors responsible for the positive forecasted growth in the housing market are (i) the sound domestic economic conditions (mainly a healthy growth rate of consumption), and (ii) the fall in the real mortgage rate (mainly due to the recent rise in inflation rate). At the same time, we note a slight reduction in the number of housing starts in the past year, which can also explain the continued positive trend in the national property prices.

When it comes to the regional housing markets, the predicted patterns of property price behaviour vary across regions. We note that expectation about the future interest rate increases, which is an important determinant of housing dynamics in London but not in the other regional markets, is the key factor that puts a downward pressure on the house price growth in this region. On the other hand, we note a small decrease in the ratio of property prices to personal income in the last quarter for the first time since the early 2013. This measure is an indicator of housing affordability, and it has been gradually deteriorating until the third quarter of 2016, when the ratio of prices to income reached its historical maximum. The improvement in housing affordability together with the fall in the real mortgage rate and the sluggish supply of housing are all factors responsible for continued growth in London property prices. According to the forecasting results, housing inflation in London will slow down in the first quarters of 2017, but the growth in property prices is predicted to build up towards the end of the year. Overall, the forecasts indicate a 3.9% growth in London property prices in the course of 2017.

The forecasts predict a similar pattern of house price behaviour in the regions contiguous to London, including Outer Metropolitan, Outer South East and South West. We note that the property market of East Anglia, which is currently growing faster than any other regional market of the country, is predicted to slow down in 2017, but still remain the market with the highest housing inflation (the forecasts suggest that house prices in this region will grow by 5.7% over the year). We see deterioration in housing affordability in all these regional property markets: the ratios of house prices to households’ disposable income are at or close to their historical maxima.

Charles Fletcher, Head of Analysis, Cogress:

The news is not particularly surprising when you consider the series of unprecedented events over the past twelve months that have rocked the UK economy and property market. From the stamp duty changes, to rising inflation rates squeezing consumer-spending power, and the shocking referendum results in the UK, a house price slowdown amidst such economic uncertainty was effectively inevitable.

With that said, property values are still 5.1% higher than they were at the same time last year. Even though the growth rate is slowing, a shortage in supply of both new homes and existing properties will continue to lift UK house prices. Meanwhile, demand for housing is being supported by an economy that continues to perform well with employment still expanding.

Over the next few months, we expect that the UK’s financial resilience will be reflected in the property market. Although prices and transaction levels in prime central London areas like Chelsea and Kensington may keep dropping, this will be offset by properties valued below £1,000,000, which are still trading well. This trend towards more affordable properties is indicative of mounting consumer caution over major spending decisions and the difference between one’s ‘need’ for property and one’s ‘want’ for property. The large disparity between supply and demand for property across the country means that competition will remain fierce for properties at the more affordable end of the market, even against Brexit’s uncertainty. Which means that cities such as Manchester, Bristol and Leeds will continue to benefit from ongoing tenant demand.

While issues of affordability will remain top-of-mind for many UK consumers and first-time buyers, falling house prices in central London represent an opportunity for foreign buyers. Many central London estate agents have been reporting that a large portion of their applicants are $-based buyers hoping to take advantage of currency fluctuations to invest in valuable long-term property assets.

Despite predictions of a price crash, we expect that house prices will continue to grow at a stable rate over the next few months. This is as a result of the country’s sound economic conditions and a resilient property market that can withstand any potential volatility Brexit brings.

Gavriel Merkado, Founder & CEO, REalyse:

The recent announcement that the UK housing market has slowed to its lowest pace in three and a half years was not a surprise. The UK market has experienced a period of instability, with an imbalance in supply and demand leading to properties becoming overpriced. If you pair this with the low interest rates the UK has been experiencing and the relative ease of access to debt finance, you are left with a market that is unaffordable for the masses.

Over the past year, the government has been instructed that to help solve the housing crisis 300,000 more homes must be built in England alone, year-on-year. Despite this goal, we are still experiencing low levels of housebuilding and development, which have subsequently added to high prices. Therefore, it appears that a key reason for the slowdown is affordability.

It will be interesting to see the impact this shift has on the market over the next few months. We have already endured a period of uncertainty following the Brexit vote, and while the initial shock period is calming, implications are still far reaching. Brexit may well lead to an increase in inflation, with the Bank of England forced into increasing interest rates, which in turn may put pressure on the purchasing market.

There is also the impact of movement of EU migrants to consider, with many of them residing in the UK expecting to return home in the lead-up to Brexit. If this does prove to be the case, we may experience a drop in demand for rental property, which in turn could balance out the demand for buying property.

Investors and developers should monitor the situation closely, as we are already noticing a shift in the patterns of growth and decline. Central areas, such as London and Manchester, that were previously viewed as overpriced, could experience a stabilisation in prices, whilst some regional cities and suburban areas, such as Cambridge, could continue to rise in price. Other socio-economic factors, such as the development of the high-speed rail links may also lead to the increase in value of other regional towns and cities.

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

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

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

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

Anand Selvarajan, Regional Leader for Europe, RSM International:

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

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

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

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

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

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

Joan Hoey, Europe Analyst, Economist Intelligence Unit:

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

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

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

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

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

Alan Shipman, Lecturer in Economics, The Open University:

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

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

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

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

Alicia Kearns, Director, Global Influence:

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

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

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

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

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

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

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

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

Philippe Gelis, CEO and Co-Founder, Kantox:

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

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

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

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

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

Catherine Hendrick and Adam Borowski, Synechron Business Consulting:

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

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

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

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

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

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

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

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

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

Alister Esam, CEO, eShare:

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

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

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

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

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

John Newton, CTO and Founder, Alfresco Software:

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

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

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

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

Owain Walters, CEO, Frontierpay:

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

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

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

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

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

Lynn Morrison, Head of Business Engagement, Opus Energy:

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

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

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

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

Salvador Amico, Partner, Menzies LLP:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Markus Kuger, Senior Economist, Dun & Bradstreet:

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

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

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

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

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

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

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

Kerim Derhalli, CEO and founder, invstr:

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

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

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

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

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

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

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

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

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

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

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