Brexit Bear Summarises November 2017

11 Dec 2017

November saw the UK to a certain extent giving in to the rather impractical EU negotiating stance of agreeing how much we pay to leave before we agree the terms of leaving, but the month ended with an optimistic view generally that we could begin shortly to discuss trading arrangements. Well, after the Christmas break… We need to remember that nothing is agreed until everything is agreed, however!

British manufacturers reported stronger growth in October, driven by higher domestic demand and export orders. The IHS Markit PMI rose to 56.3 last month, from 56 in September, with a reading above 50 indicating expansion.

Business owners' confidence in their firms' prospects has improved over the past three months, according to a survey by the ICAEW. Although companies remain cautious because of political uncertainty, profits and exports are both growing at the fastest pace since 2015 while capital investment spending is also at a two-year high. R&D spending is on the increase and employment intentions are strong, the survey found. ICAEW CEO Michael Izza commented: “While businesses are struggling to be confident in the current environment, there are reasons to be more optimistic.” However, he did add that the findings illustrate “the cliff edge that the UK economy is on at the moment. The recent interest rate rise was not unexpected but any sudden shocks from the Chancellor at the Autumn Budget could have a serious impact.”

A survey by the Chartered Institute of Procurement & Supply (CIPS) reveals that 63% of EU companies with UK suppliers plan to move some of their supply chain out of the UK after Brexit, up from 44% polled in May. The figures are likely to alarm British exporters. Meanwhile, 40% of UK businesses were adopting a similar stance and had begun the search for domestic suppliers to replace their EU partners, up from 31% in May. The CIPS said 26% of UK businesses had taken the opposite approach and were "strengthening their relationship with valuable suppliers on the continent". Gerry Walsh, the CEO of the CIPS, said: "British businesses simply cannot put their suppliers and customers on hold while the negotiators get their act together." A separate survey from BDO shows a fall in UK business output growth from 99.95 in September to 99.06 a 21-month low in October. BDO partner Peter Hemington said: "The government must address the low levels of productivity now by taking advantage of cheap borrowing costs and invest in transport and digital infrastructure, training and skills to protect future economic growth."

Bank of England Governor Mark Carney has said investment has slowed since the EU referendum with the economy growing when it should be booming. Uncertainty over the UK’s trade deal with the EU had dampened foreign and domestic investment. He added that if the Brexit deal leaves the UK with “materially less access” to the EU single market then the economy “is going to need to reorient and during that period of time it will weigh on growth.” In the event of a bad Brexit deal, the Bank of England would not be able to cut future interest rates because of inflationary pressure, he said. Also there isn’t much to cut, Mark. Still, it looks like if we are leaving the EU leaving when the going is good makes sense, rather than trying to do this is a recession.

A study by City analyst Bob Lyddon claims the EU is costing the UK £980m a week, with £12bn a year lost to the Exchequer through legal tax avoidance schemes which result from Britain being a member of the EU.

A “no deal” Brexit would result in £16bn being wiped off the UK's GDP by the end of 2020, according to a new report from Oxford Economics, 2% down on where it is currently pitched to be. A no deal would also result in a 3.1% rise in the cost of importing goods from the EU, while the bloc would pay 3.5% more for UK exports. The report argues that the idea that the UK walks away from Brexit talks and reverts to WTO rules is “deeply flawed”. “The risks to this scenario are skewed to the downside – a slump in confidence or failure to establish the necessary customs infrastructure in time could easily generate a worse outcome,” the report says.

The Public Accounts Committee has warned that it would be “catastrophic” if the UK’s customs system is not improved in time for Brexit. Committee chair Meg Hillier said HMRC should be “banging on the doors of the Treasury” to demand funding to upgrade the Customs Handling of Import and Export Freight (Chief) system.

And finally, to complete the confusion:
Berenberg Bank has forecast that the economy will grow faster in 2018 and 2019 as the expected agreement of a Brexit divorce bill should inspire more business and household confidence. It has raised its GDP growth forecasts by 0.1 percentage points in each of the next two years, with growth rising from 1.5% this year to 1.8% in 2018 and 1.9% in 2019.