Brexit uncertainty
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BOE’s Haldane Says Brexit Uncertainty Lifting From U.K. Economy

Most of the Brexit uncertainty that has been overshadowing the U.K. economy has lifted, although it’s too early to say business investment is fully returning, according to Bank of England Chief Economist Andy Haldane.

A “big chunk, if not all” of the uncertainty has dissipated, Haldane said in answer to questions following a speech at Bloomberg’s European headquarters in London Monday. That’s contributing to investment starting to pick up, but it’s “too early to declare victory,” he said.

Political tensions and a lack of clarity on Britain’s future relationship with its biggest trading partner has been weighing on growth and held businesses back from spending on capital that could bolster the country’s lackluster productivity. Recent survey data, however, has started to show some signs that the economy is beginning to bounce back.

Globally, the economy has grown stronger since the financial crisis more than a decade ago, Haldane said. Banks’ balance sheets are in better shape and he doesn’t seen the buildup of new asset bubbles. While trade has been hurt by U.S.-China tensions, he doesn’t predict a “wholesale retrenchment” of globalization.

Source: Investing

UK economy UK companies UK business leaders UK economic growth London commercial property market Post-Brexit trade deal
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End of Brexit uncertainty boosts London commercial property market

London is set for an increase in commercial property investment in 2020 as international investors target the capital’s high-yielding office market, following the decisive 2019 UK General Election result. According to the latest research from Knight Frank, investors have increased the total capital targeting London commercial assets to £48.4bn, a 21 percent rise on 2019 and £2bn higher than 2018. However, with just £2.3bn of buildings for sale, investors will face strong competition, which is expected to drive values higher in 2020.

Knight Frank’s annual London Report details the opportunities and challenges facing the capital’s real estate market in the year ahead. It reveals that in 2019 London commercial property investment activity fell 15 percent to £13.9bn, down from £16.8bn in 2018, as Brexit uncertainty and a shortage of available assets constrained the number of deals.

Nick Braybrook, Head of London Capital Markets said: “Despite the fall in activity, London remained the second largest market for commercial office real estate investment in 2019, topped only by Paris and ahead of New York, Hong Kong and Berlin. London’s stability and global status is attracting international investors who see a competitive economy, strong occupier market and high office yields, compared with other global cities. We expect the sheer weight of international demand for London assets to push prices on, and we have already seen an increase in transactions as activity ramps up following the UK General Election result.

“International investors are attracted to London as a safe haven, offering political stability and positive growth prospects, as well as an attractive exchange rate and high yields. Office yields are amongst the best in the world and certainly the most favourable when compared to key European centres. In the City of London average yields are currently 4 percent, while in London’s West End they stand at 3.5 percent. Comparable yields in leading European cities such as Paris, Frankfurt and Amsterdam are 3 percent. And despite the prospect of London yield compression this year, office yields still outweigh most global bond offerings.”

Faisal Durrani, Head of London Commercial Research said: “One of London’s underlying strengths is its vibrant labour market, which is reflected in resilient leasing activity. New office development has not been able to keep pace with this demand, and almost half of the space currently under construction is already spoken for. This supply crunch is most significant for those businesses seeking large amounts of space. We are tracking 30 businesses seeking more than 100,000 square feet, yet there are currently just 16 buildings in London that can service these requirements.

“Indeed, the supply shortage is helping to underpin our rental growth projections over the next five years. These show that headline office rents will rise by 15.7 percent in core West End locations such as Mayfair and St. James’s by the end of 2024. Elsewhere, we forecast rents in the City core to grow by 20 percent in the next five years.”

By Neil Franklin

Source: Workplace Insight

Brexit UK housing market Brexit relief UK firms
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Brexit relief for UK economy might not last long

Britain’s economy will cast off some of the Brexit uncertainty that has held it back since 2016 after Prime Minister Boris Johnson’s election triumph, but the risk remains of another “cliff-edge” showdown with Brussels in a year’s time.

With Britain’s exit from the European Union on Jan. 31 now a foregone conclusion, the question for investors is whether Johnson will stick to his campaign promise not to delay the end-of-2020 deadline for a new EU trade deal.

That deadline is widely seen as tough to meet, given the scale of issues to be resolved.

In the short term, the biggest election victory for Johnson’s Conservative Party since Margaret Thatcher’s 1987 triumph removes a major brake on growth: the deadlock in parliament over how, or even whether, to proceed with Brexit.

Johnson said in a victory speech on Friday that Britain would leave the EU on Jan. 31 “no ifs, no buts, no maybes.”

His election win also banishes the prospect of a sharp shift to the left under the Labour Party which promised nationalisations, more power for trade unions and a much bigger role for the state, which had worried many business leaders.

“For Brexit, this all means that Johnson’s deal will be ratified, most likely allowing the UK to leave the EU at the end of January,” economists at ING said in a note to clients.

“But more importantly, it could give the prime minister the political breathing room to ask for an extension to the transition period.”

The pound jumped by the most in nearly three years on the first sign of the scale of Johnson’s victory and shares in companies that rely on domestic British economy rose. [GBP/]

Investors pared back their bets on the Bank of England cutting interest rates as the uncertainty about the way ahead for Britain’s economy lifted, at least in the short term.

The world’s fifth-biggest economy has slowed since voters decided to take Britain out of the EU nearly 3-1/2 years ago.

Leaving the bloc, which accounts for nearly half the country’s exports, is seen as a drag on its economic growth over the long term.

But the new sense of clarity about Brexit, at least in the short term, is likely to lead to a pick-up in the pace of growth in the coming quarters, economists said.

British government bond prices fell sharply as trading in London’s gilt markets opened, helped not only by the conclusive election result but also by signs of an end to the U.S-China trade deal that has weighed on the global economy. [GB/]

But economists turned their attention quickly to what the election result meant for Johnson’s longer-term Brexit plans.

He promised during the election campaign not to extend a Brexit transition period beyond Dec. 31 2020.

That raises the prospect of tariffs and other barriers coming into force for Britain’s trade in goods and services with the EU in just over a year’s time.

Economists at RBC Capital Markets said the new government would probably try to keep a no-deal Brexit on the table for as long as possible to maintain leverage with the EU in the trade talks.

“However, with such a comfortable winning margin Johnson is not reliant on any faction of his party, in particular the hard-Brexiteers who might have tried to steer him toward a hard Brexit at the end of the transition period,” they said.

“Some form of extension now looks more likely even if some effort will be made to give the impression that is not the transition period that the Conservative Party promised not to extend in its manifesto.”

But economists at Citi said they thought Johnson would not try to delay the transition phase because he won support from voters who backed the Conservatives for the first time because of the party’s tough stance on Brexit.

“In this scenario, when the UK exits the EU Single Market and Customs Union on 31 December 2020, we expect a mild recession to follow in 2021 as divestment among exporting sectors accelerates,” they said.

Editing by Stephen Addison

Source: UK Reuters

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Brexit uncertainty woes in half of Scottish SMEs

A NEW study published today shows that Brexit uncertainty is taking its toll on Scotland’s Small to Medium-sized Enterprises with almost half of business owners in this category stating that the ongoing process is impacting how they run their business.

Some 44% of Scotland’s Small to Medium-sized Enterprise (SME) owners reported that the uncertainty surrounding Brexit has affected their business.

According to research released by Nucleus Commercial Finance, 16% of UK SME owners said they have become more uncertain about making business decisions, while a further 11% have written off having a successful business year in 2019.

The survey found other responses that included 9% of owners have spent less time focusing on their business this year due to Brexit.

Some 8% have put off future planning and strategy development as a result of lack of political clarity

It’s not only businesses in Scotland feeling the impact of Brexit, the research found that the majority of business owners across the UK are feeling the same. In the survey which covered Scotland, Wales, and the English regions, Scottish SMEs said they were the least affected.

Some 65% of London business owners have said they were impacted, with 59% of SMEs in the North West of England saying they were affected.

In the league table, Wales came next on 58%, the North East and the West Midlands on 54%, the South East on 53%, East Midlands on 52% and Yorkshire on 51%.

The survey was carried out by Opinium who undertook the fieldwork between October 30 and November 4, gaining the opinions of 1004 business owners of SMEs.

Nucleus Commercial Finance is an alternative lender with a range of bank finance, spanning secured and unsecured loans, business cash advance and a range of asset-based lending products.

Chirag Shah, chief executive officer of Nucleus Commercial Finance, said: “The last three years of uncertainty around Brexit has clearly had a negative effect on small businesses in Scotland.

“It’s particularly alarming that a significant amount of SME owners have now put future planning and strategy development on hold. SMEs need to invest in their future to stay ahead, however today’s political and economic environment is not providing business owners with the confidence to do this.”

Meanwhile, activity in Scotland’s private sector rose for the first time since August, according to new economic research.

The Royal Bank of Scotland Purchasing Managers’ Index (PMI) showed an increase in private-sector output in November.

An increase in the workforce and a rise in orders in the service sector were key to the growth.

Malcolm Buchanan, Scotland board chairman at the Royal Bank of Scotland, said: “November’s survey data highlighted some positive signs for the Scottish private sector.

“Output rose with services growth outweighing the recent manufacturing downturn.

“Meanwhile, new business increased for the first time in four months, with the rate of expansion in Scotland second only to London across the UK.”

He added: “Nevertheless, uncertainty continued to subdue demand, with client hesitancy weighing on output and activity.

“A clearer outlook is required to boost demand and for the private sector to gain momentum in the closing stages of the year.”

Source: The National

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UK mortgage lending dips as buyers hesitate due to Brexit uncertainty

UK mortgage lending dipped in October as buyers hesitated due to economic and political uncertainty caused by Brexit and the upcoming General Election.

Gross mortgage lending across the residential market last month was £25.5bn, a dip of 0.9 per cent compared to October 2018.

Mortgage approvals for home purchases by the main high street banks increased three per cent and remortgage approvals soared 12.7 per cent, according to the latest data from UK Finance.

Credit card spending, which amounted to £11bn in October, was 2.3 per cent lower than last year, and repayments were in line with expenditure, demonstrating that consumers are managing their finances responsibly.

Personal borrowing through loans increased 7.4 per cent, and overdraft use was 1.2 per cent higher than the same time the previous year.

John Goodall, chief executive at buy-to-let specialist Landbay, said: “The reality is that lenders are (and have been) ready and willing to lend, instead it’s would-be buyers who need that final nudge to make their move.

“Looking forward, with the election looming, we may finally see the cloud of uncertainty begin to lift – assuming there is a clear parliamentary majority.

“If this does happen, we could see a spike in demand as those who were holding off in recent years consider making their move in 2020. With their genuine appetite to lend, lenders will be gearing up to facilitate any increase in demand.”

Mark Harris, chief executive at mortgage broker SPF Private Clients, added: ‘Gross mortgage lending has fallen slightly compared with last October, reflecting perhaps the high level of uncertainty that continues to hamper the housing market as a whole.

“Until the general election result and Brexit are settled, it looks unlikely that the lack of confidence this is instilling in the market will change.”

By Jessica Clark

Source: City AM

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UK house prices won’t match low inflation until 2021

UK house prices will not match low inflation until 2021 and are set to fall in London this year as buyers are put off by continuing Brexit uncertainty, according to new research.

House prices in the capital will fall 1.5 per cent this year and only hold steady in 2020, a poll by Reuters found.

However forecasts for this year ranged from a drop of three per cent to no change, while in 2020 forecasts were between a two per cent fall to growth of five per cent.

“Until we have greater certainty regarding the political environment it isn’t possible to forecast what might happen in London with the greatest accuracy,” Rod Lockhart at property finance hub LendInvest told Reuters.

“We do not anticipate a material price rebound in London until at least 2022, although we may experience some recovery from 2021 – if and when the political ‘dust’ begins to settle.”

Last month, Foxtons, the London-focused estate agent, said revenue dropped in the third quarter as Brexit uncertainty continued to weigh on the residential property market in the capital.

Elsewhere in the UK, house prices are predicted to rise one per cent this year, 1.5 per cent next year and 2.3 per cent in 2021, according to the poll of 27 property market analysts.

Meanwhile, inflation is forecast to be 1.9 per cent, 1.9 per cent and two per cent respectively.

“Regardless of what happens with Brexit in the months ahead, a revival in the housing market is unlikely,” said Hansen Lu at Capital Economics.

“Indeed, even if a Brexit deal is implemented soon, we expect to see only a small improvement in housing market transactions and house price growth over the next two years.”

By Jessica Clark

Source: City AM

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UK home prices to lag inflation on Brexit uncertainty

Annual home price rises in Britain won’t keep pace with already-low inflation until 2021, a Reuters poll found, and will fall in the capital London this year as uncertainty around the country’s departure from the European Union continues to deter buyers.

Britons voted in a June 2016 referendum to leave the EU but there is still no clarity about how, when or even if the two sides will finally part ways.

That uncertainty is likely to continue even if Britain leaves by Jan. 31 as is currently scheduled as there is another tight deadline – by the end of 2020 – for both parties to hammer out a new trade deal, though many doubt that target can be met.

Prices in London, for decades a magnet for foreign investors and speculators, will fall 1.5% this year and only hold steady in 2020, the Nov. 5-18 Reuters poll found.

But highlighting the ambiguity, forecasts for this year ranged from -3.0% to no change. For 2020, the range was even wider, from -2.0% to +5.0%.

“Until we have greater certainty regarding the political environment it isn’t possible to forecast what might happen in London with the greatest accuracy,” said Rod Lockhart at property finance hub LendInvest.

“We do not anticipate a material price rebound in London until at least 2022, although we may experience some recovery from 2021 – if and when the political ‘dust’ begins to settle.”

London-focused real estate agent Foxtons Group (FOXT.L) reported a fall in third quarter revenue late last month and said ongoing political uncertainty continued to weigh on volumes and prices in the London residential sales market.

Nationwide, home prices will rise 1.0% this year, 1.5% in 2020 and 2.3% in 2021, the poll of 27 property market specialists predicted. Inflation is forecast for those years at 1.9%, 1.9% and 2.0% respectively. [ECILT/GB]

“Regardless of what happens with Brexit in the months ahead, a revival in the housing market is unlikely,” said Hansen Lu at Capital Economics.

“Indeed, even if a Brexit deal is implemented soon, we expect to see only a small improvement in housing market transactions and house price growth over the next two years.”

Based on recent public opinion polls, British Prime Minister Boris Johnson looks set to win a Dec. 12 election and secure the backing in parliament he needs to get his new Withdrawal Agreement passed and take Britain out of the EU on Jan. 31.

Johnson’s Conservative Party has extended its lead over the opposition Labour Party during the past week, an opinion poll by ICM for Reuters showed on Monday.

BREXIT DEAL BOUNCE

Economists in another Reuters poll last week overwhelmingly said Britain would eventually strike a free-trade deal with the EU. The second-most likely resolution was Britain remaining a member of the European Economic Area. [ECILT/GB]

But third most likely in the poll of economists was the country leaving the EU without a deal and trading under World Trade Organization rules – something the housing market experts polled by Reuters said unanimously would have the most deflationary impact on home prices.

Economists said the least likely outcome was Brexit being cancelled. Housing watchers – again, unanimously – said that outcome would be the most inflationary for house prices in the coming year.

Rising prices would not be welcomed by first-time buyers struggling to get on the property ladder since, despite very low borrowing costs, scraping together the minimum 10% deposit demanded by most lenders poses a huge challenge.

The average asking price nationally for a home was 302,808 pounds ($391,652) this month, property website Rightmove said, around ten times the average British salary. The average price was double that in London.

When asked to describe the level of London house prices on a scale of 1 to 10 from extremely cheap to extremely expensive, the median response was 8. Nationally they were rated 6.

FILE PHOTO: Estate agent’s signs hang from houses in the Selly Oak area of Birmingham, Britain September 25, 2018. REUTERS/Darren Staples
“While house prices in London and the surrounding regions have been falling over recent months, prices are still significantly higher than elsewhere in the country, making buying a property in the capital unaffordable for many people,” said Jamie Durham at PwC.

“But this affordability problem is not constrained to just the capital, and house prices are high relative to wages right across the country.”

Polling by Sarmista Sen and Khushboo Mittal; Editing by Ross Finley/Mark Heinrich

Source: UK Reuters

UK consumer spending
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UK consumer spending growth slows under Brexit uncertainty

UK consumer spending slowed in October, a new report has shown, as Brits remained cautious with their money in the run-up to the missed 31 October Brexit deadline.

Spending at the shops grew by 1.5 per cent in October year on year, down from growth of 1.6 per cent in September, the latest data from payments provider Barclaycard showed today.

Consumer spending has kept the UK economy on its feet in 2019, as investment and trade have suffered under Brexit uncertainty. Yet there are growing signs that politics is taking its toll on sentiment.

Barclaycard director Esme Harwood said: “Ongoing economic uncertainty combined with a bleak start to autumn led many Brits to stay in rather than spend out last month, choosing takeaways and evenings at home over socialising at bars or restaurants.”

Non-essential spending picked up slightly to two per cent in October. The wet weather kept people inside, however, leading them to spend 6.9 per cent more on fast food and takeaways than a year earlier.

The entertainment sub-sector suffered, with consumers spending three per cent less on things such as concert and theatre tickets.

Retailers could be in for a challenging Christmas as just 47 per cent of people are confident that they will be able to spend as much as they normally do on festivities, Barclaycard said.

One area that has done well in recent months is discount stores. Spending at shops such as Aldi grew by 7.7 per cent in October, and 61 per cent of people surveyed by Barclaycard said they were seeking value for money from purchases.

Harwood said: “It’s likely we’ll see consumers continue to seek out value – whether that’s through buying more in discount stores or snapping up bargains in the Black Friday sales.”

Overall consumer confidence remained low in October. Just three in ten Brits feel positive about the state of the UK economy, with only a quarter of 34 to 54-year-olds upbeat about the situation.

By Harry Robertson

Source: City AM

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Bank of England could cut interest rates if Brexit uncertainty persists, says MPC member

The Bank of England may need to cut interest rates even if a no-deal Brexit is avoided, according to a member of the monetary policy committee (MPC), which sets the rates.

Michael Saunders has said that the Bank may have to cut rates if the “slow puncture” effect on the economy from Brexit uncertainty persists.

It comes just a week after an MPC meeting in which there was no indication that borrowing costs could be cut.

“The economy could follow very different paths depending on Brexit developments,” Saunders said at a business event in Barnsley.

“But in my view, even assuming that the UK avoids a no-deal Brexit, persistently high Brexit uncertainties seem likely to continue to depress UK growth below potential for some time, especially if global growth remains disappointing.

“In such a scenario – not a no-deal Brexit, but persistently high uncertainty – it probably will be appropriate to maintain an expansionary monetary policy stance and perhaps to loosen further.

“Of course, the monetary policy response to Brexit developments will also take into account other factors including, in particular, changes in the exchange rate and fiscal policy.”

Following his remarks, the sterling has fallen by 0.3 per cent against the dollar to 1.229, although it has recovered slightly from its initial dip to 1.227.

Saunders said that Brexit had meant uncertainty for around 50 per cent of businesses and that while it had only had a modest effect on UK growth in 2017 and 2018, this year there was evidence of weaker growth.

The rate-setter also acknowledged that the appropriate policy response to a no-deal Brexit could go up or down, dependent on how supply, demand and exchange rates are affected.

Similarly, if the UK avoids a no-deal Brexit, he said: “Monetary policy also could go either way and I think it is quite plausible that the next move in Bank rate would be down rather than up.

“One scenario is that Brexit uncertainty falls significantly and global growth recovers a bit. In this case, some further monetary tightening is likely to be needed over time.

“Another scenario, and this is perhaps more likely to me, is of prolonged high Brexit uncertainty,” he said.

Saunders concluded that: “In steering through these uncertainties, the MPC will of course be guided by our remit and the aim of ensuring a sustainable return of inflation to the 2 per cent target in a way that supports output and jobs.”

Bank barking up wrong tree

Chief analyst at Markets.com, Neil Wilson, says the comments show the Bank are “barking up the wrong tree”.

“In making the case for a cut now it conforms to the belief in many in the market that the Bank is barking up the wrong tree with its slight tightening bias in its forward guidance,” he said.

“The comments from Saunders are clearly an added weight on the pound.”

By Michael Searles

Source: City AM

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Unchanged interest rates amid Brexit uncertainty, predicts EY

Despite recent expectation that the Bank of England could either raise or even cut the UK interest rates, EY’s economic analysts have predicted the will likely remain the same.

As recently as June, the focus on UK monetary policy has been when the Bank of England is most likely to raise interest rates.

A turnaround in sentiment, however, has led some to believe the Bank of England could be just as likely to cut them.

According to EY’s ITEM (Independent Treasury Economic Model) Club, it would be a surprise for the Monetary Policy Committee (MPC) meeting to result in anything other than a unanimous 9-0 vote in favour of keeping UK interest rates at 0.75%.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “We expect the Bank of England to keep interest rates unchanged at 0.75% on Thursday following a unanimous 9-0 vote of the Monetary Policy Committee (MPC) at their August meeting. This would match the outcome of the MPC’s last meeting in mid-June.

“However, a fair amount has changed since the last MPC meeting in mid-June and this will lead to a lot of interest in the tone of the minutes of the August meeting as well as in the new growth and inflation forecasts contained in the simultaneously released Quarterly Inflation Report.”

The direction interest rates move hinges on Brexit developments. Should the UK leave the EU with a deal in place, the EY team expects that the current rate of 0.75% will remain the same well into 2020, and gradually rise in-line with a slowly growing economy.

The expectation is that the Bank of England will acknowledge the recent increased risk facing the UK economy due to uncertainty surrounding Brexit, but are unlikely to react by cutting interest rates unless there is a damaging ‘no-deal’ Brexit in October.

“Increased belief that the Bank of England’s next move will be to cut interest rates rather than increase them is the consequence of a number of factors,” said Archer. “These include the weakened performance of the UK economy in the second quarter, domestic political uncertainties, a slower and more uncertain global economic environment which is expected to see the Federal Reserve and ECB shortly cut interest rates, and Brexit uncertainty.”

“If the UK ultimately leaves the EU without a “deal”, the Bank of England has repeatedly held to the view that interest rates could move in either direction.”

The view mirrors Bank of England Governor Mark Carney’s comments saying that the prospect of a no-deal is slowing down economic growth, and that the BoE would likely be required to provide stimulus to the economy should a no-deal occur.

Speaking to MPs, Governor Cerny said: “It’s more likely we would provide some stimulus. We have said we would do what we could in the event of a no-deal scenario but there is no guarantee on that.”

“There is not a business investment boom going on in the country right now. I think we all know why that is not the case.”

The fear of further Brexit uncertainty is also reflected in economic predictions. The likelihood is that further delay in leaving the EU could also lead to a cut to interest rates, or at the very least a long delay before any hike.

Archer said: “If Brexit is delayed again – most likely until the end of March 2020 – we expect the Bank of England to hold off from hiking interest rates until further into next year as it gauges how the economy is performing after the UK’s exit from the EU.”

By Chris Jewers

Source: Accountancy Age