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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

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Where are the best investment opportunities for 2019?

With 2019 fast approaching, we asked some of the UK’s leading fund managers to highlight the stocks they are watching closely and to share their outlooks for the new year.

As 2018 draws to a close, there is much to feel nervous about.

The UK is set to leave the European Union in March 2019 and a deal is yet to be agreed; investors have experienced a profound sell-off over the past few months; trade tensions have escalated between the US and China; and the global economy appears to be cooling.

“Global growth is getting harder, with the trade war having a particular impact on China. The US too is finding growth more difficult, as the Trump stimulus package wanes,” explained Jeremy Lang, manager of the Ardevora UK Equity fund.

“There was nowhere to hide for investors in the recent market sell-off, as traditional areas of shelter did not provide any safety,” he added.

Lang suspects that 2019 will be much like 2018, with the market experiencing “many wild mood swings”.

UK outlook

When it comes to the UK market, he notes there appears to be “more palpable gloom and little optimism”.

“This undoubtedly drives strong investor desire for overseas earners.

We are now enticed by areas of the market most other investors hate, as there are increasing odds of a surprisingly benign outcome.

“While still small, the odds of another referendum and a remain verdict are far better than they were weeks ago. Even if we were to see a second referendum, there are going to be a number of hurdles and pockets of anxiety along the way,” he explained.

With this in mind, Lang and co-manager William Pattisson have reduced their fund’s exposure to commodity stocks which earn a large proportion of their earnings overseas.

“We used the proceeds to buy into more domestically-focused value opportunities, such as Travis Perkins,” he added.

Ken Wotton, manager of the LF Gresham House Multi Cap Income fund, notes that Brexit is likely to cause further volatility in the UK market. Nevertheless, investors must remember that this will create selective opportunities.

“While large-cap businesses are generally impacted by macro factors, the agility and niche positioning of smaller companies may allow them to react positively to broader economic headwinds,” he said.

He believes Inspired Energy, which provides energy advisory services, is poised for strong performance in 2019.

“While it advises mid-sized corporations, Inspired Energy is paid in commission from contracts with large energy suppliers, with payments based on the energy usage companies incur. This guarantees multi-year revenue and high earnings visibility for the business,” Wotton said.

Phil Harris, manager of the EdenTree UK Equity Growth fund, notes that the unforeseen variables and endgame scenarios surrounding Brexit may feel like attempting to play “three-dimensional chess”.

In spite of the political headwinds, he is encouraged that the UK economy has so far proven robust.

“With sentiment at multi-year lows and UK valuations reflecting this, we expect to find multiple opportunities across the UK small and mid-cap space for us to deploy our current high levels of cash,” Harris explained.

Better opportunities elsewhere

David Coombs, who manages the Rathbone Multi-Asset Portfolio range, and assistant manager Will McIntosh-Whyte note that Brexit has so far divided the nation and slashed the amount that businesses have invested here.

“Yet the UK has muddled through so far. Wages are rising, albeit slowly, retail sales were okay despite some high-profile high street failures and business surveys remain in expansionary territory. We don’t think the UK is doomed, but we see better investments elsewhere,” the managers explained.

Looking ahead, as central banks around the world tighten monetary policy, the managers suspect that share prices will come under pressure.

“That’s just the way valuations work: as the rate you get for taking zero risk goes up, the value for risky cash flows goes down. While this will likely cause another bumpy year for stock markets, it does come with benefits.

“Government bond yields are returning to levels where they should offer better protection for portfolios. And for rates to rise, that’s usually because countries are growing and deflation is out of the picture,” they added.

Against this backdrop, Coombs and McIntosh-Whyte expect well-run businesses with low debt levels to prosper.

Source: Your Money

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UK stocks could surge when Brexit is settled

The bounce seen in global equity markets since the end of last week as a result of an improving political environment could be replicated in the UK if the Brexit process comes to a stable conclusion.

This is according to Russ Mould, UK investment director at AJ Bell.

His comments came as Asian and emerging market equities opened strongly this morning (December 3) following progress in the trade dispute between the US and China, with our sister title the Financial Times reporting that US president Donald Trump is to offer a “truce” in the dispute.

Mr Mould said the swiftness of the response by investors to the change in the political rhetoric indicated that if a similar change in the political weather were to happen in the UK, then the UK equity market would also increase sharply.

He said the UK market has underperformed all other developed equity markets in 2018, an outcome that has left it on a valuation multiple of just over 11 times earnings, which is considerably less than the long-term average for the market of 18.

The yield on the UK market of 4.8 per cent is also greater than that offered by other markets, and Mr Mould said this makes those markets “cheap.”

Aninda Mitra, senior analyst at BNY Mellon, said the market is “elated” by the developments in the trade dispute but he added that the reprieve could prove temporary.

Markets have also been boosted by comments from Jerome Powell, chairman of the US Federal Reserve, who stated last week that US interest rates may be approaching the peak level for now, and so not need to rise by as much as the market had previously expected.

Ed Smith, head of asset allocation research at Rathbones, said the move by Mr Powell has boosted markets, but that a change in relations between the US and China would provide an even bigger boost.

Jonathan Davis, Chartered financial planner of Jonathan Davis Wealth Management in Hertford, said there have always been issues in markets but investors should remember that this has not stopped equities rising consistently over the past century.

Source: FT Adviser

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Property investment: the four property types you should avoid

When it comes to property investment, I always emphasise the need to have personal goals.

What you want to achieve from your property journey will be different to another investor and, as such, the type of investments you put your money into will differ too.

That being said, there are some investments that I wouldn’t recommend to anyone.

Student pods

You buy a room within a purpose-built student block and rent it out to students. Many will come with a guaranteed rental return for a period of one or two years. What’s not to love?

Well, lots actually. Firstly these pods are almost always overpriced, that guaranteed return you’re getting will have been factored into the asking price.

Secondly, the resale market is virtually non-existent. You can only sell to other investors. And your tenant market is also severely limited.

Finally, there is very little possibility of capital growth. Prices will only rise if yields do.

Student apartments can be a terrible investment (image: PA)

Hotel rooms

Hotel room investments are similar to student pods.

You buy a hotel room, a management company rents it for you, and you get a return. It’s a hands-off investment – which can be many attractive to investors.

What’s not so attractive, of course, is the fact these too have a capital growth issue and a distinct lack of a resale market. What’s more, you’ll be hard pushed to find a lender willing to lend to you on such an investment.

Think twice before investing in hotel rooms (image: Shutterstock)

Overseas ‘hotspots’

I’m certainly not suggesting overseas investments are a bad idea in general. However, you should be wary of areas marketed in a particular way.

We’ve seen what happens when marketers get overexcited. A few years ago Bulgaria and Spain were the locations what we’re heading for a boom; prices were going to soar, so investors and developers had to get in quickly. And now? Prices have plummeted in both countries, and thousands of homes stand empty.

Be cautious around claims of price rises. Do your own research, don’t focus too much on price, look at yields and, as ever, consider the fundamentals of the area.

Overseas properties can be prone to hype (image: Shutterstock)

Bargain properties

It is certainly possible to get a property bargain.

If you’re able to have other points of negotiation, you could get a great deal on a property. But if a property price seems too good to be true, assume that it’s not and do your research.

There’s very little point in buying a family house to rent out – even if you get it for rock bottom price – if nobody wants to rent it!

Check the rental market, the local amenities, the employment opportunities before getting carried away by a bargain.

By Rob Bence

Source: Love Money

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What do tenants want from your UK property investment?

From bedroom numbers to proximity to local work and education hubs, a new survey reveals the amenities young British tenants prioritise, giving investors an insight into what makes the strongest investment property.

Summary:

  • Young UK tenants reveal the things they want when looking for a rental home
  • 40% of 18 to 24-year-old renters in the UK state bedroom numbers as being very important
  • A quarter also believe that it’s very important to live close to work or university, highlighting the need for investors to focus on prime city centre locations

Are you targeting the type of property that will attract and retain UK tenants?

New research, published by online comparison site GoCompare, reveals the things that makes a rental property attractive to young British tenants.

When asked what they look for when finding a new rental home, 40% of 18 to 24-year-old renters believe that the number of bedrooms a property has is very important, suggesting young tenants are prioritising one and two-bedroom homes and apartments over studios.

Location is also another key priority. 48% of young renters state that living close to work or university is somewhat important, while 25% believe that this is a very important factor.

30% of 18 to 24-year-olds also want to move into an apartment that’s unfurnished.

The survey also revealed that 40% of tenants did not state whether they wanted to own a home in the future or not, underlining the changing attitudes towards ownership in the UK. Separate research published earlier in 2018 suggests that up to one-third of millennials (those born between 1980 and 1996) will now rent their entire lives.

All of these things that tenants now demand is driving the growth of the purpose-built rental sector. Buy-to-let, formerly the UK’s preferred rental sector, can no longer deliver the type of high-quality property in central locations that young renters now want.

Instead, investor interest is now shifting towards prioritising modern, city centre accommodation that young tenants will pay a premium to access.

Source: Select Property

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Forget buy-to-let! These residential REITs target returns of 8% plus

Buy-to-let property has been an incredibly popular investment over the past few decades, and the UK is now estimated to have more than 2m landlords. However, the rapid pace of growth in buy-to-let investments appears to be slowing down due to recent tax and regulatory changes, which make residential lettings less attractive compared to other investments.

Prospective new investors should also bear in mind that buy-to-let investments can be incredibly time consuming and stressful. Personally, I think I spend enough time making sure my gas and electrical appliances work without worrying about someone else’s. There are also great risks involved, as lengthy void periods or tenants not paying rent could cause you to lose your property if you can’t cover the cost of your mortgage payments.

Residential REITs

However, there is another way to invest in residential property. Over the past two years, there have been a number of new UK residential real estate investment trusts (REITs) listing on the London Stock Exchange. These investment vehicles offer a quick and easy route to investing in residential property and enable shareholders to spread the risk across multiple investment properties.

The Residential Secure income REIT (LSE: RESI), which invests in a mix of shared ownership, market rental, functional and sub-market housing, gives shareholders exposure to UK house price movements combined with steady income streams derived from strong covenants and long leases.

The REIT, which debuted with its IPO in July 2017, seeks to deliver an inflation-linked target annual dividend of 5% and total returns in excess of 8% per annum, assuming RPI inflation of 2.5%. ReSI’s objective is to deliver long-term stable inflation-linked returns to its shareholders by acquiring high quality residential assets which comprise the stock of UK social housing providers.

With the £180m that the company has raised in its IPO, it has so far invested in 1,772 retirement residential units located across England, Scotland and Wales. These investments represent roughly £155m of the proceeds raised, which implies further acquisitions will be made as the company targets a 50% debt-to-asset ratio.

Build-to-rent

Elswhere, investors should also take a look at the PRS REIT (LSE: PRSR), which is particularly noteworthy because of its strategy of investing in newly constructed build-to-rent homes. Investing in newly-built private rented housing allows PRS to acquire new properties at a slight discount to the potential sale price on completion via forward funding of new developments.

As such, PRS is expected to earn a higher net initial yield when compared to purchasing existing housing stock. On the downside, however, operational risks may sometimes be greater due to potential construction problems and dilapidations, which could affect both rents and resale values.

PRS has completed just over 400 homes since June 2017 and has committed a further £437m for new developments, with around 1,300 new homes under construction. Under its current strategy, it will utilise roughly one-third of its equity to purchase completed assets, with the remainder used for forward fund developments within the REIT itself.

The company is targeting a 6% annual dividend yield and net total shareholder returns of at least 10% per annum, based on its IPO price of 100p.

Source: Yahoo Finance UK