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London remains main target for foreign investment

London continued to attract more foreign direct investment than any other UK city last year, prompting calls for a wider distribution of funds across the country.

The capital attracted 73 per cent of the total 624 projects secured in 2018, according to research by EY and the Centre for Towns.

The level of investment into the UK’s 12 largest cities has increased from 31 per cent in 1997 to 59 per cent in 2007, with London dominating the list.

However, Edinburgh, Leeds, Manchester and Newcastle upon Tyne more than doubling the number of FDI projects in the ten-year period.

The called for more investment in the UK’s towns and rural communities after research found that manufacturing FDI projects in former industrial and university towns fell by 50 per cent last year.

Over the last 20 years, large towns – with a population of more than 75,000 people – have seen their share fall from 26 per cent to 17 per cent.

EY chief economist Mark Gregory said: “The towns and conurbations on the periphery of the UK’s core cities are facing unprecedented economic challenges, but what is particularly worrying is how deep the economic disparity between cities, towns and smaller communities has become over the last 12 months.

“Core cities have been far more successful in attracting FDI while levels of investment in other locations has at best flatlined over the past 20 years.

“UK economic policy has tended to be based around core cities and this is likely to have exacerbated the geographic disparities in attracting FDI. With Brexit being one of a range of challenges facing the UK economy it is vital that a new approach to FDI policy, centred on geography, is developed as a priority.”

In total, 34 per cent of foreign investors said the availability of transport and technological infrastructure was an important factor when choosing a location to invest, while 32 per cent said the local skills base was a key criteria.

By Jessica Clark

Source: City AM

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UK still an attractive place to invest despite Brexit uncertainty, report finds

The UK has retained its position as one of the world’s leading hubs for business, according to a new report which suggest investors have taken a ‘wait-and-see’ approach towards Brexit.

In a comprehensive global index released this morning, the UK was ranked as one of the best global hubs for business, scoring highly for its low start-up costs and attractiveness for foreign investment.

Business advisory group Eight Advisory, which produced the report, suggested the long-term cost of Brexit has yet to emerge across a wide range of economic and wellbeing indicators.

“While Brexit creates considerable uncertainty the foundations of the UK’s economy are particularly strong, and it remains an attractive place to invest and do business,” said Alexis Karklins-Marchay, a partner at Eight Advisory and prominent figure within the French business community.

He told City A.M.: “Confidence has plummeted in the last 3 years, but Britain should have confidence in its own ability. This is one of the most competitive countries.”

Despite scoring highly in areas such as human freedom, higher education and happiness levels, the UK’s productivity was found to be “an ongoing and long-running concern”.

Eight Advisory also said that Brexit was proving a “distraction from the issues facing the UK economy”, such as productivity and standards of primary education.

The report comes weeks after consultancy Z/Yen showed that London has clung onto its second place in a ranking of the world’s top financial centres, but its position in the top tier is under threat amid Brexit chaos and other geopolitical shifts.

“There are fundamental issues that need to be addressed if the UK’s hard-earned reputation as an international leader is to be protected in the long term,” Karklins-Marchay added.

By Sebastian McCarthy

Source: City AM

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Investments slow amid Brexit

In spite of the Brexit cloud hovering over the British Isles, the UK economy itself has proven surprisingly resilient.

Low unemployment, a pick-up in wage growth relative to inflation, and expansion in the dominant services sector would all normally be welcomed by investors. Should we view the UK as an attractive place to invest, despite its political woes?

At around 4 per cent, UK unemployment is brushing up against historical lows, and faring much better in this regard than its European counterparts, with the exception of Germany.

Indeed, the UK’s latest jobs market data demonstrated the lowest unemployment rate since the 1970s, at 3.8 per cent.

Meanwhile, on mainland Europe, unemployment in France, Italy and Spain is around 9 per cent, 10 per cent and 15 per cent respectively – although these countries do usually have structurally higher levels of unemployment than the UK.

Key points

  • UK unemployment is at historic lows
  • In the corporate sector, confidence has stagnated
  • Brexit and political turmoil has stalled capital spending plans

Typically, with lower unemployment comes upward pressure on wages, which we are witnessing in the UK today.

In the three-month period to the end of May 2019, total earnings (not including bonuses) rose by 3.6 per cent – the highest since mid-2008.

Low and stable inflation is allowing this wage growth to translate into rising disposable incomes and increased spending power for British consumers – further good news for the economy. 

Against this favourable labour market backdrop, UK interest rates have remained benignly low, and are likely to stay that way for the foreseeable future.

We believe that the Bank of England is ultimately looking to increase its store of dry powder in advance of any future recession – that is, raising interest rates so that it has room to cut them again in periods of economic weakness. For now, paralysed under a weight of Brexit uncertainty, it has little choice but to remain on the sidelines.

Over the longer term, we anticipate only gradual and minimal interest rate increases, particularly given the levels of debt in the economy.

In the corporate sector, confidence and investment have both stagnated – typically a bad sign for economic growth – and more recently this has been evidenced in weaker economic data. However, rather than invest, UK businesses are currently stockpiling high levels of cash.

These excess corporate savings, held tight by nervous businesses, could be released if a Brexit resolution materialises. In turn, this could offer a potentially significant investment boost to the UK economy.

Nonetheless, the outlook for the UK economy is troubled, not least by a lack of clarity on Brexit, as well as the entwined domestic political turmoil.

This week, Conservative party members chose their next party leader, and by extension the new prime minister.

Shortly after, the UK will be back to the negotiating table with the EU, which has previously made clear that it has no intention of reopening the withdrawal agreement. However, a change of leadership in the UK and at the top of key EU institutions may just provide fresh impetus to the discussions.

Given the deeply uncertain political backdrop, the ‘wait and see’ attitude currently being adopted by investors is entirely understandable, as is the mirroring of this unease in the corporate world.

It is worth noting that while businesses stockpiling their cash could well mean a boost to the economy in the future, in today’s terms this means that growth in corporate investment has stalled.

Prolonged uncertainty surrounding Brexit could delay capital spending plans further, without the guarantee that these funds will be released into the economy in the future. 

The UK’s dominant economic sector, services, is still in expansionary territory, which is encouraging.

However, in keeping with the global growth picture and concerns around global trade, the UK’s manufacturing sector, albeit much smaller than its services sector, is more troubled, with the latest business surveys showing that it is in contraction.

Further, there are key pockets of weakness in both the retail and real estate sectors, both of which faced an especially challenging 2018.

In addition, the UK has some notable structural problems. Perhaps most conspicuously, it has yet to deal effectively with its debt issues. The UK still sports twin deficits, meaning that the government spends more than it earns (fiscal deficit) and the country imports more than it exports (trade deficit), making it a net borrower overall.

In spite of its challenges, the UK has remained economically robust, and in the future could become an attractive place to invest once more.

The limited political will for a no-deal Brexit outcome is indeed a positive sign for domestically-focused UK assets and the potential for sterling strength ahead.

Nevertheless, UK shares remain markedly unloved by investors, and as a result they are also relatively cheap, appearing good value by virtually all measures, but particularly on price-to-book ratios (the total value of a company’s shares versus the value of its net assets).

Given its out-of-favour status, any change in sentiment could see large capital inflows to the UK stock market and provide a boost to valuations.

However, this simply cannot occur until we have more clarity in UK politics. Without this, and a more certain understanding of our future relationship with Europe, it is hard to justify significant further investment in the UK market in the near term.

By Nikki Howes

Source: FT Adviser

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Investing in property? Make sure you’re doing it properly

For many investors, the finite nature of land translates into making property a safe, steady investment that diversifies a portfolio.

As ever in life though, if only it were so simple as just buying the asset – whether that is a building, an aircraft or a bond.

It’s not just what you buy that matters, it also matters how you buy it. This is especially true of property.

While a long-term, stable play, real estate is an illiquid asset. That means that you have to invest into it in a way that doesn’t lead you exposed to this fundamental fact.

The debacle around Neil Woodford’s Equity Income fund has highlighted how open-ended funds are not best suited to hold such illiquid assets. Open-ended funds by their very nature imply a promise of liquidity through redemption mechanisms funded by cash reserves or asset sales.

Despite the fine print warning of the possibility of “gating” and delays on redemptions, this is not what investors want or expect. If a fund suspends, as has happened with Woodford’s, it’s bad news for end-investors who find their money locked in when they did not expect it.

Ultimately, that doesn’t help anyone. Now the Bank of England is considering banning investors pulling their money out of open-ended funds at short notice if the underlying asset is hard to sell (of course, this includes real estate).

But while I would argue an illiquid asset like property is fundamentally mismatched to open-ended funds in their current guise, this shouldn’t take away from the fact that – when invested in the correct manner – property is a great investment.

Closed-end funds and co-investing are two investment structures much better suited to real estate, because they are not as fundamentally exposed to its illiquid nature.

As global macro uncertainty inches up, real estate is a solid play which investors will want it as part of their portfolio.

One of the prime real estate investment opportunities can be found in the UK’s build-to-rent (BTR) sector, which is far past the stage where it should be labelled as a niche or alternative asset class. It is accelerating into the mainstream, with investment predicted to reach £75bn by 2025.

That surge of investment is being driven by crystal clear market fundamentals.

The UK’s housing supply-demand imbalance has lasted for years, and will likely persist for decades given the past shortfalls in providing new housing.

However, the success of build-to-rent isn’t just down to a lack of homes, it’s about quality as well.

Renting through non-professional landlords remains a mixed experience for many, with the hassles of bills or having basic maintenance arranged often leaving many frustrated.

The sector is not just a London phenomenon – it is a solution that is being applied nationwide.

For regional cities, towns, businesses, and workers alike, this is good news. Build-to-rent can accelerate the supply of homes in regions, encouraging workers to move around more and help businesses outside of the capital attract top class talent.

Our partnership with Moda Living is primed to capitalise on this, with 6,500 apartments in key cities across England and Scotland.

Of course, any discussions about investing into the UK at the moment will have to consider the long-running Brexit saga. The uncertainty caused may make it harder for other assets and services to secure investment.

But this uncertainty appears to have increased institutional interest in build-to-rent, given its stable, income driven investment characteristics, and the clear long-term demand for more homes.

Property is a fantastic investment. Twain was right – they aren’t making any more land. What he should have added though was that you need to invest in it in the right way.

By Mervyn Howard

Source: City AM

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Private equity investment boosts UK business revenue by more than 50 per cent

Private equity backed businesses saw revenue soar by more than half in the last five years, new data published today shows.

Investment by private equity firms boosted revenue at UK firms by 53 per cent, from £30.7bn in 2013 to £47.1bn last year.

In the last financial year PE-backed companies had a growth rate of 10 per cent, according to analysis of 2,000 firms by accountancy firm BDO

Jamie Austin, head of private equity at BDO, said: “The figures speak for themselves. Businesses that have the backing of private equity investors are driving growth and creating jobs against a backdrop of uncertainty and the UK economy would suffer without them.”

The research showed that private equity backed firms also created on average between five to ten new jobs a year and boosted employment levels by 43 per cent over the five year period, creating an additional 86,500 positions in the UK.

“These businesses are the squeezed middle of the business world. They are too big to benefit from the raft of policies aimed at startups yet too small to have the ear of policymakers like big corporations,” Austin added.

“While successive governments have worked hard to create a business-friendly environment in the UK, there is always more that can be done.

“Fast-growth businesses are the backbone of our economy and should be front and centre of the Government’s post-Brexit thinking.”

By Jessica Clark

Source: City AM

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Brexit set to hurt UK investment for years – BoE’s Haskel

British business investment will probably stay weak for the next few years because of uncertainty linked to Brexit, a Bank of England interest-rate setter said, calling into question suggestions of a Brexit deal “dividend” by the finance minister.

As Jonathan Haskel gave his first speech since joining the BoE’s Monetary Policy Committee in September, Prime Minister Theresa May’s Brexit strategy was in meltdown after her failure to win last-minute concessions from the EU ahead of a key parliamentary vote on Tuesday.

Haskel said a planned 21-month transition period that is supposed to come into effect when Britain formally exits the European Union on March 29 might run for longer than expected.

In the longer term, companies also need to know whether Britain will have a customs union agreement with the EU or strike a free trade agreement in order to have a sense of how high any new barriers to trade with the bloc will be, he said.

“The longer-term question is whether investment will eventually bounce back after uncertainty is resolved. The answer to this depends on what trade deal is struck,” he said in a speech at the Department of Economics at the University of Birmingham.

“At least for the next few years the prospect of low investment seems possible.”

Companies in Britain cut back their investment in each of the four calendar quarters of 2018 — the longest such run since the depths of the global financial crisis — as the country approached its departure from the European Union.

PRODUCTIVITY CONCERNS

Haskel said almost 70 percent of the slowdown in business investment in Britain since the Brexit referendum in June 2016 was linked to uncertainty over Brexit.

The BoE is concerned that weak business investment will aggravate Britain’s low productivity growth, holding down growth in wages and making the economy more susceptible to inflation.

With May facing the risk of another humiliating defeat of her Brexit plan in parliament on Tuesday, she has opened up the possibility of a short extension to the current negotiations.

Finance minister Philip Hammond, seeking to help May get parliament behind her deal, has said investment is likely to pick up once companies have more clarity that Britain can avoid an economically damaging no-deal Brexit.

Haskel declined to comment on the implications of weak investment for the BoE’s thinking on interest rates, saying that would be something for his next speech.

“Since this thing… is very hard to predict, that’s the way I would think about it. But that will be the next speech, to trace through the relative impact on the demand and supply,” he said during a question-and-answer session after his speech.

The BoE has said it expects to resume raising interest rates if Britain can seal a deal to avoid a no-deal Brexit.

Governor Mark Carney and some other policymakers have said they think they would probably need to cut rates if Britain fails to secure a transition deal to ease the shock of its exit from the EU.

By Andy Bruce

Source: UK Reuters

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UK firms investing billions abroad because of Brexit

The UK government hopes that Brexit will make the UK a better place to do business, but new numbers from the Centre for Economic Performance (CEP) show that the opposite is happening. UK firms are voting with their money and offshoring new investments to the rest of the EU.

The study finds that the Brexit vote has led to a 12% increase in new foreign direct investment (FDI) projects by UK firms in EU countries, a total increase in foreign investment of £8.3bn. A no-deal Brexit would further accelerate the outflow of investment from the UK.

This is the first systematic, evidence-based analysis of how the Leave vote has affected outward investment by UK firms. The findings support anecdotal evidence that fears about Brexit are causing UK companies to move investments elsewhere in Europe.

The report, by CEP experts Holger Breinlich, Elsa Leromain, Dennis Novy and Thomas Sampson, found:

  • The Brexit vote has led to a 12% increase in the number of new investments by UK firms in EU countries.
  • The estimated increase totals £8.3bn (over the period between the referendum and September 2018). To the extent that increased investment in the EU would otherwise have taken place domestically, this represents lost investment for the UK.
  • The data show no evidence of a ‘Global Britain’ effect. There has not been an increase in investment by UK firms in OECD countries outside the EU.
  • Higher outward investment has been accompanied by lower investment into the UK from the EU. The referendum reduced the number of new EU investments in the UK by 11%, amounting to £3.5bn of lost investment. This illustrates how the UK is more exposed to the costs of Brexit than the EU.
  • The increase in UK investment in the EU comes entirely from higher investment by the services sector. Brexit has not affected foreign investment by UK manufacturing firms. This suggests that firms expect Brexit to increase trade barriers by more for services than for manufacturing, perhaps because the government has prioritised the interests of manufacturing over services in the Brexit negotiations by focusing on reducing customs frictions, while ruling out membership of the EU’s single market.

The report’s findings support the idea that UK firms are offshoring production to the EU because they expect Brexit to increase barriers to trade and migration, making the UK a less attractive place to do business.

Holger Breinlich said, “Our results show that Brexit has already led to an investment outflow from the UK of over £8bn.

“These outflows are likely to accelerate substantially in the event of a no-deal Brexit.”

Dennis Novy said, “The economic risk of Brexit is larger on the UK side of the Channel. British firms feel compelled to invest more in the EU but not the other way around.

“Combined with existing evidence that the Brexit vote has already affected the UK economy through lower real wages, slower GDP growth and fewer firms starting to export to the EU, the initial signs are that ‘Project Fear’ may turn out to have been ‘Project Reality’.”

Thomas Sampson said, “The data show that Brexit has made the UK a less attractive place to invest.

“Lower investment hurts the economy and means that UK workers are going to miss out on new job opportunities.”

Source: London Loves Business

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Savings rates beat property price growth

Investing your money in a top savings account over the last year will have earned you more money in returns than the property market, new research has found.

Mutual insurer, Royal London, has discovered the best-buy interest rates were now higher than the annual average property price growth in England.

It came to the conclusion after analysing Land Registry figures, which showed the average home in England grew in value by 2.6% in the past 12 months to £247,430. Meanwhile, the best fixed-rate savings bond, as highlighted by analysts at Moneyfacts, was a seven year deal paying out 2.75% interest.

It means the best savings rate has performed better than the average UK property. Even the best easy access savings account, which currently pays 1.42%, would be enough to beat house price rises in the slowest regions of London and the South East, some areas of which have seen price declines.

Becky O’Connor, personal finance specialist at Royal London, said: “Savings rates have been offputtingly low over recent years, as a result of the rock bottom Bank of England base rate. However they have risen slightly as the base rate has increased.

“Coupled with a decline in the rate of house price growth, this trend has resulted in the most competitive savings accounts now paying more interest annually than property owners typically earned in the last 12 months.

“While it is still difficult to beat inflation with most savings rates on offer, if you live in London or the South East, it is now easy enough to beat the current rate of house price inflation with a savings account.”

Royal London pointed out its research was based on savings accounts with the very best rate on the market. It said the rate and term of a savings account could make a difference to returns you end up with.

Indeed, the returns on individual properties could also depend on a number of factors, including its location and whether it’s a main home or a buy-to-let.

Tax advantages

Royal London is urging savers and investors to remember the tax advantages of pensions and ISAs when planning where to place their cash for the long-term.

O’Connor added: “It’s important to remember that property or savings accounts are not the only things you can do with your money for long term financial returns. Saving into a pension comes with significant tax advantages and over the long term, the performance of stocks and shares investments tend to outperform cash.

“Money that goes into a pension benefits from tax breaks whilst money withdrawn from an ISA is tax free.”

Source: The Money Pages

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4 ways to increase your savings in 2019

Everyone wants to increase their savings. Yet with most UK savings accounts offering abysmal interest rates at present, this is easier said than done. That said, there definitely are ways to boost your total if you’re willing to use your initiative or to take on a little risk. Today I’m going to show you some ways in which you could earn a higher interest rate than the 1.5% being offered on savings accounts in 2019.

Bank accounts
One approach is to take advantage of bank accounts that offer higher interest rates on smaller sums of money.

For example, Tesco Bank’s current account currently pays 3% on savings up to £3,000, as long as you pay in £750 per month and make three direct debits. Each individual can have two of these accounts, meaning that a couple could potentially earn 3% on £12,000 (4 x £3,000), which equates to £360 interest per year.

Other accounts that could be worth a look include the TSB Classic account, which pays 5% on up to £1,500, and the Nationwide FlexDirect which pays 5% fixed for a year on up to £2,500, although both have conditions.

Fixed-term savings
If you don’t need access to your money in the short term, another easy way to pick up a higher interest rate is to invest your cash in a ‘fixed-rate’ savings account for a certain period of time. For example, the Post Office is currently offering a rate of 1.9% on its one-year fixed-term savings account.

While the rates on two-year and five-year products are higher than one-year options, I wouldn’t recommend locking money away for longer than a year, as UK interest rates could rise in the future, meaning that interest rates on savings accounts could improve too.

Peer-to-peer lending
If you’re keen to earn a higher rate than 3% on your money, consider peer-to-peer (P2P) lending. This is where you lend your money to other people, or businesses, through a P2P platform. Through popular UK platforms such as Zopa, Funding Circle, and Ratesetter it’s not hard to earn rates of 4% or higher. Having said that, it’s important to note that P2P lending is riskier than putting your money in a bank account. Borrowers can struggle with repayments meaning you might not get back all of your money. Furthermore, given that P2P lending is a relatively new industry, we don’t know how it will perform if the economy collapses. So it’s worth proceeding with caution here – it’s probably not wise to put your entire life savings into P2P lending.

Dividend stocks
Finally, if you’re serious about increasing your savings, consider investing some money in dividend stocks. These are companies that pay shareholders regular cash payments out of their profits several times a year. Right now, there are some fantastic yields on offer from some of the UK’s largest companies, such as 6% from Shell, 6% from HSBC and 8% from British American Tobacco. With these kinds of stocks, it not hard to start building up a passive income stream.

Of course, stocks are riskier than cash and in the short term, share prices can be volatile, meaning you might not get back what you invested. However, research has shown that over the long term, stocks tend to generate returns of around 7%-10% per year on average, which is far higher than the returns from cash savings in the current low-interest-rate environment.

Source: Yahoo Finance UK

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London Brexit fears see Asian property investors choose Dublin

Brexit has turned Asian property investors off London. Now, they’re reappearing in Dublin.

For the first time ever, Asian investors accounted for three of the top five investments in office buildings in the Irish capital in 2018, according to estate agents Knight Frank.

This included the biggest deal, the €176m (£158m) sale of one of the city’s largest office developments to Hong Kong-based CK Properties Ltd.

Across the board, analysts have been suggesting that London would see a Brexit-related dent to its property market. Earlier this year, a report from Savills indicated that Asian-based investors’ interest in the capital had tailed off, falling behind the level of demand among UK-based buyers.

It is of course no secret that many of the UK’s large financial services firms have decided to move some of their operations from London to elsewhere in Europe because of concerns over Brexit.

Dublin has been a big winner in this respect, and now it seems to be benefitting from top-line investment, too.

According to Knight Frank, when all of the year’s transactions are completed, the overall value of commercial property deals will have jumped from €2.5bn (£2.25bn) in 2017 to €3.5bn (£3.15) in 2018.

The office market accounted for the biggest share of transactions, something the firm said was due to strong occupier demand and competitive pricing compared to other European capitals.

Around 25% of Brexit-related relocation announcements between June 2016 and September 2018 involved moves to Dublin, according to Knight Frank — putting the city ahead of Luxembourg, Paris and Frankfurt.

Bank of America and Barclays, which has rented prime city-centre real estate a stone’s throw from Ireland’s parliament, are two high-profile banks that chose Dublin for their post-Brexit European Union hubs.

But Dublin’s real estate market has also long benefitted from its thriving technology district, known as Silicon Docks.

In May, Google announced it would spend €300m on the purchase and redevelopment of a series of warehouses in the district, dramatically expanding its existing European headquarters.

And Facebook, which also has its European headquarters in Dublin, announced it was set to quadruple its office space in the city, with room for 5,000 extra staff, by signing a long-term lease for a new 14-acre campus.

Knight Frank’s report also points to a big increase in Dublin’s private rental market, with several global institutional investors spending upwards of €1bn (£899m) in the sector.

Favourable long-term demographics, rising rents, and new investment-grade properties coming on stream are three of the main factors that encouraged the growth, the report says.

Source: Yahoo Finance UK