Pre Halloween Brexit Bear Briefing
19 Oct 2018
Brexit Bear is wondering – again – Why it is our job to solve the EU's border problems as the UK PM demands flexibility from the EU and the EU demands new ideas (read flexibility) from the UK. Time to relax with a DVD of an old film – “River of No Return”?
Recently the international trade secretary has claimed a post-Brexit trade boost will bring in £50bn, removing the need to raise taxes or cut spending in order to invest more in the NHS. Liam Fox told the inaugural international trade banquet at Mansion House last night: “As a government, we have been elected to be fiscally responsible whilst, of course, continuing to fund public services. This can only be achieved through a strong economy that generates extra revenue without increasing the individual tax burden. But fiscal balance is not solely about whether to raise taxes or cut spending - it is also about how to generate more revenue by growing the economy domestically and selling more of our goods and services abroad.”
As part of what we won't miss much (but may tolerate for longer than we thought), the European Commission has stepped up its legal threats against the British government for failing to collect €2bn in lost customs duties.
According to the Federation of Small Businesses, only one in seven small firms have begun any planning for a no deal Brexit – despite 41% believing crashing out of the EU without a deal will hit their company. A further 10% said that a no deal scenario next March would benefit them. Mike Cherry, the FSB's national chairman, said: “It is deeply troubling that the prospect of no deal is seeing many small firms shelving business decisions, pausing investment and, more drastically, thinking about cutting staff.”
Delphine Gény-Stephann, the French junior economy and finance minister, has launched a new government-backed tech incubator to lure thousands of UK financial technology jobs to France. The incubator offers companies support with funding and strategies, and also offers foreign companies “relocation packages”.
Predictably, growth in UK exports has slowed for the sixth quarter in a row, the rising price of UK exports, thanks to higher costs, is contributing to the sluggish growth. Accountants BDO said the UK's continued drop saw it “creeping closer to the point of contraction.”
Somebody has found a silver lining, as US firms are taking advantage of the cheap pound to snap up some of Britain's most successful businesses at bargain prices. The value of deals involving US firms buying British businesses in 2017-18 was £79bn, up from £36.8bn the previous year. Accountants Moore Stephens said US firms, unlike their European counterparts, had shrugged off Brexit concerns. "This has been in part due to the devaluation of sterling since 2014, making British businesses comparatively cheaper than many of their foreign competitors," it said. What family silver?
Research from the Chartered Institute of Procurement and Supply suggests up to 10% of UK businesses would face bankruptcy if goods were delayed by 30 minutes as a result of Brexit trade friction. The study also found almost a quarter of companies are preparing to stockpile goods in the future and 4% have already started to do so. The rest can do so or go bankrupt, so management action is required. Change happens, deal with it, thinks the bear.
Research by another leading accounting firm shows British businesses are more anxious about Brexit than at any time since the 2016 referendum, with more bosses reining in hiring and investment plans. The firm's latest survey of CFOs found that only 13% are more optimistic about the prospects for their company than they were three months ago, whereas in July, 24% expected conditions to brighten. Some 79% of finance chiefs say they now expect the long-term business environment to be worse as a result of leaving the EU, up from 75% in the second quarter of 2018. "CFOs have become more pessimistic about the long-term effect of the UK's departure from the EU," said Ian Stewart, chief economist at Deloitte.
Somehow, in the fog of battle, the London Stock Exchange has been named the most attractive market for newly listed companies in Europe after hosting 16 IPOs in the third quarter of the year. The activity raised £1.7bn - 49% of the total across Europe - and included four of the five largest IPOs. So London is holding on to the top spot, the volume of stock market flotations still fell by 47% in the third quarter, while the value of proceeds raised from London listings down by 71%.
Hard Brexit or slow slump, the IMF has warned that the underlying state of Britain's finances is one of the worst in the world following the 2008 financial crash, leaving it dangerously exposed to a recession. The financial watchdog calculated the net worth of 31 countries and found that almost £1trn had been wiped off the wealth of the UK's public sector - equivalent to 50% of GDP - putting it in the second weakest position behind Portugal.
A recent quarterly Brexit Monitor has found that more companies now believe Brexit will damage their business than help them. Sentiment on the impact of Brexit on business, measured by YouGov, dropped from 113 in the second quarter of 2018 to 99 in the third quarter. Meanwhile, research has found that 59% of 1,046 SMEs want to see a snap general election as soon as Britain leaves the EU next March. Confidence in the Government to deliver a good deal for SMEs has fallen to 52%, down from 58% the previous quarter, while the number believing the Government will finalise negotiations by March has fallen from 62 to 54%. That number has doubles changed over the last few days.
As part of the “non-bonus” for Brexit, as many as 80% of SMEs say that they are struggling to attract staff with the relevant skills, according to recruitment consultancy Robert Half, with employers forced to offer increased salaries in an attempt to attract talented candidates. Matt Weston, UK managing director at Robert Half, said: "Technology and digitalisation is rapidly changing the UK business landscape. This, coupled with Brexit uncertainty, means businesses must adapt their recruitment strategies to ensure they are equipped with the right talent to keep up. However, the skills desired within certain roles remain specialist and unobtainable without presenting a competitive offer. The skills required are changing at a faster pace than their adoption among the mainstream UK workforce." UK PLC needs better vocational and job training, but that costs money this year and Government and overpaid CEOs are not very forward thinking.
And now back to that film…