UK pay rates pick up strongly and should shore up growth

September 13, 2018

Official figures show that UK pay levels picked up strongly during the summer, a development that should shore up the economy amid the uncertainty surrounding Brexit.

The Office for National Statistics said Tuesday that average earnings excluding bonuses over the three months through July were up 2.9 percent from the same period the year before. In the three months to June, regular UK pay rates were up 2.7 percent.

Related: What impact is Brexit uncertainty having on the UK economy?

The increase means households are better off in real terms as consumer prices are growing more slowly. In July, the annual rate of inflation stood at 2.5 percent.

The improvement in living standards is a potential boon to growth at a time when there’s much uncertainty surrounding Britain’s exit from the EU next March.

Source: Business Insider UK

Brexit estimated to cost UK more than 2% of GDP

September 8, 2018

Gross Domestic Product (GDP) has been found to be 2.1% lower than it would have been had Brexit not happened, according to a UBS report released on Monday.

The research suggests that if the UK had not voted to leave the European Union, investment would have been at 4% higher and inflation 1.5% lower.

The report also revealed that consumption is 1.7 percent lower and the real effective exchange rate (REER) has depreciated by 12 percent.

Economists at UBS measured how much Brexit has cost the UK so far by analysing and comparing to what the GDP would have looked like now had Remain won the vote in 2016.

According the report, “without Brexit we think UK GDP could have been 100 basis points per year higher.”

What does this mean for accountancy?

Negotiations between the UK and EU seem to be worsening with the UK government failing to come to agreements on the type of Brexit they want next March.

In fact, progress is so slow that HMRC released a report last month detailing the VAT implications of a ‘no deal’ Brexit, informing the public that while they still thought it unlikely, they must prepare for the scenario that no agreement is reached.

Related: Chancellor says no deal Brexit will damage UK GDP for years to come

The EU’s chief negotiator, Michael Barnier, rejected Theresa May’s Chequers plan which envisioned the country abiding by a common rulebook for goods but not services.

This uncertainty does not help the UK’s future growth forecasting. The International Monetary Fund lowered its UK GDP growth forecast for 2018 recently, now predicting a 1.4 percent growth compared with 1.6 percent in April.

Despite the concern, the UK economy grew by 0.4 percent in the second quarter from the first quarter, which was the same growth as the Eurozone.

UBS economists added that while there have been some negatives surrounding Brexit, like unemployment dropping to its lowest level since 1974 (four percent), wage growth is increasing and gross fixed capital formation has improved in the second quarter of this year.

Uncertainty is the main pain point for accountants when it comes to Brexit. There is uncertainty around how Brexit will impact tax, accounting standards, the accounting jobs market, and so on.

There is no escaping the confusion as we muddle close towards 29 March 2019. All accountants can do is stay up to date with Brexit-related changes and help their clients prepare for all eventualities.

Source: Accountancy Age

UK economy holding up against Brexit jitters, for now

September 6, 2018

UK economy is holding its solid pace of growth, according to a survey which showed the large services sector expanded more strongly than expected in August, but Brexit worries are hitting investment plans and confidence.

The IHS Markit/CIPS Purchasing Managers’ Index (PMI) increased to 54.3 in August from 53.5 in July, beating all forecasts in a Reuters poll of economists and rising further above the 50-mark that indicates growth.

The PMI pointed to a repeat of the overall UK economy 0.4 percent quarterly growth rate recorded in the three months to June, IHS Markit said, despite weaker than expected manufacturing and construction PMIs earlier this week.

Separate PMIs suggested the euro zone economy was on course to grow at the same pace in the third quarter.

“(This is) a relatively robust and resilient rate of expansion that will no doubt draw some sighs of relief at the Bank of England after the rate hike earlier in the month,” IHS Markit’s chief business economist, Chris Williamson, said.

Sterling edged up on Wednesday after the survey was published, but is down more than 10 percent against the U.S. dollar since April when concerns about the potential for an economically damaging Brexit began to build.

Howard Archer, an economist with consultants EY ITEM Club, said the mixed set of August PMIs showed why investors were not expecting the BoE to raise borrowing costs further any time soon, after August’s quarter-point increase to 0.75 percent.

“It looks unlikely that interest rates will rise again until after the UK leaves the EU in March 2019 given the major uncertainties that are likely to occur in the run-up to the UK’s departure,” Archer said.

UK economy has slowed since the June 2016 Brexit vote, its growth rate slipping from top spot among the Group of Seven group of rich nations to jostling with long-term laggards Japan and Italy for bottom place in the rankings.

Related: What impact is Brexit uncertainty having on the UK economy?

Nonetheless, last month the Bank of England raised interest rates for only the second time in a decade, due to concerns that labor shortages and other capacity constraints will prevent inflation returning to its 2 percent target in the short term.

Employment intentions in the services sector rose to a six-month high, but confidence for the year ahead slipped to its lowest since March, as businesses said Brexit uncertainty had made clients less willing to invest, for now.

British Prime Minister Theresa May has yet to agree the terms of Britain’s future relationship with the European Union, less than seven months before the country leaves the bloc.

Financial services accounted for much of the growth, and businesses reported softer demand from retailers, who are not directly covered by the services PMI.

Many consumers are feeling the strain of inflation that has been growing faster than their wages for much of the past decade.

“Given the increasingly unbalanced nature of growth and the darkening business mood, risks to the immediate outlook seem tilted to the downside,” Williamson said.

Firms in the PMI survey reported paying higher salaries to recruit hard-to-find staff and reduce employee turnover that was limiting their ability to complete some projects.

Official data showed record vacancies and unemployment at a 43-year low in July, but this has not translated into widespread pay rises for the workforce as a whole.

Source: UK Reuters

PM May says Britain will not compromise over Brexit plan

September 3, 2018

British PM Theresa May said she would not compromise with Brussels over her plans for Brexit as a media report said rivals in her party were set to publish their own proposal calling for a cleaner break with the European Union.

With under two months before Britain and the EU want to agree a deal to end over 40 years of union, May is struggling to sell what she calls her business-friendly Brexit to her own party and across a divided country.

The EU has tentatively welcomed what has become known as the Chequers plan which is designed to protect cross-border trade, but difficult negotiations lie ahead.

“I will not be pushed into accepting compromises on the Chequers proposals that are not in our national interest,” May wrote in the Sunday Telegraph newspaper.

Related: 5 ways life could become harder for British people if there is a no-deal Brexit

“The coming months will be critical in shaping the future of our country and I am clear about my mission.”

The plan would keep Britain in a free trade zone with the EU for manufactured and agricultural goods. But some Brexit supporters have said that would mean parts of the British economy would still be subject to rules set in Brussels.

Two of May’s most senior lawmakers – Boris Johnson and David Davis – quit as foreign secretary and Brexit secretary respectively in July in protest at May’s plan, saying it did not go far enough and would let down the millions of people who voted to leave the EU in the 2016 referendum.

According to a report in the Sunday Times newspaper, leading Brexiteer lawmakers in May’s party are ready to publish their own plan for Brexit ahead of the party’s annual conference which begins at the end of September.

That would be designed to heap pressure on PM who needs to get any deal with Brussels through parliamentary votes in Westminster before Britain is due to leave the EU on March 29 next year.

PM reiterated that Britain would be ready to leave the EU without a deal if the two sides cannot agree on the divorce terms.

Source: Business Insider UK

Theresa May could open Britain’s borders for goods under a no-deal Brexit

August 24, 2018
  • The government could open Britain’s borders to many goods coming from the EU from March next year under a no-deal Brexit.
  • Thousands of British people who live and work in Europe could also lose access to their pensions overnight under a no-deal scenario.
  • The news comes as Brexit secretary Dominic Raab publishes the first batch of no-deal contingency plans on Thursday, who will say the measures are “a sensible, measured, and proportionate approach.”

LONDON — The government could “unilaterally” open Britain’s borders to all but high-risk goods from March next year under a no-deal Brexit in a bid to avoid chaos at Britain’s ports.

The government, which would face a massive increase in customs checks if it failed to secure a deal with Brussels, would set up new “technical options” which would “minimises delays” at the borders and digitally collect VAT, introducing spot checks on some goods but waving most through.

The no-deal plans say that “customs checks may be carried out” on goods entering from the EU but said they would be “highly automated, risk-based and intelligence-targeted” controls, meaning many goods would simply not be checked.

The government would not demand Brussels to reciprocate the deal, meaning UK firms would face big new tariff and non-tariff barriers on goods being exported to Europe which could run many out of business.

Large numbers of British people who live and work in Europe could also lose access to their pensions under a no-deal scenario, the Sun reported.

British citizens who have worked in EU countries and built up pension funds abroad which are then paid into a UK bank account are said to be particularly at risk.

Brussels pensions rules mean that funds that cross borders can only be paid into EU-registered bank accounts.

That means expats and former expats with British bank accounts risk having their payments cut off when the UK becomes a third country in March next year.

‘Sensible, measured, and proportionate’

Dominic RaabBrexit secretary Dominic Raab Jack Taylor/Getty

The news comes as Brexit secretary Dominic Raab publishes the first batch of no-deal contingency plans on Thursday.

He will say in a speech that the measures are “a sensible, measured, and proportionate approach to minimising the impact of no deal on British firms, citizens, charities and public bodies,” and claim “a duty, as a responsible government, to plan for every eventuality.”

The UK is set to leave the EU in March 2019, and a number of issues in talks remain unresolved, meaning the prospect of both sides failing to reach a divorce agreement has increased significantly.

Related: 5 ways life could become harder for British people if there is a no-deal Brexit

But Labour’s Brexit secretary Keir Starmer warned that failure to secure a deal would represent “a complete failure” to negotiate on the government’s part.

“If the publication of these documents is just a crude attempt by Ministers to dress up the severe consequences of a no deal Brexit as somehow acceptable, the whole exercise will be pointless,” he said in a statement.

“A no deal Brexit would be a complete failure by the Government to negotiate for Britain. These documents should not distract us from that.

“No deal would be catastrophic for people’s jobs, the economy, and for the border in Northern Ireland.

“It is irresponsible for anyone to casualise no deal,” he said.

Source: Business Insider UK

Business leaders’ confidence in UK economy at lowest so far this year

August 21, 2018

Business leaders’ confidence in the British economy has fallen to its lowest point this year reflecting the impact of uncertainty over Britain’s exit deal with the European Union, according to a survey published on Monday.

With less than eight months to go until Britain is due to leave the EU, the government is yet to agree the terms of its departure with Brussels and has stepped up planning for the possibility of failing to reach a formal agreement.

The survey of 750 business leaders, carried out by the Institute for Directors (IoD) employers group, found that after general economic conditions, uncertainty around trade with the European Union was the biggest concern.

Asked how optimistic they were about the wider economy over the next 12 months, more said they were pessimistic than optimistic, resulting in a net confidence level of -16 percent.

Related: Business confidence hits lowest level since the financial crisis

That compared with -11 percent in June, and down from a positive rating of 3 percent in April. The IoD said 44 percent cited uncertainty over the trading status with the EU as having a negative impact on their organisation.

“Despite cautious optimism emerging amongst the business community earlier in the year, any momentum appears to have dwindled,” Tej Parikh, Senior Economist at the Institute of Directors, said in a statement.

“We’re heading back to the levels of pessimism we saw before progress was made on phase one of Brexit talks.”

The survey, carried out July 11-26, found respondents were more positive about the prospects for their own organisations, with a net positive outlook of 37 percent, although this was also down from 46 percent in June.

Parikh said that as well as uncertainty over Brexit, larger businesses had been hit by other headwinds including oil price rises, while smaller firms were suffering from high costs, skills shortages and weak productivity.

“It’s unfortunate that the Brexit process has limited the bandwidth of government to meet equally pressing domestic economic challenges, that needs to change sooner rather than later,” he said.

Source: UK Reuters

UK services sector shrinks for first time since 2010

August 8, 2018

The UK’s services sector has contracted for the first time in eight years, according to the latest Business Trends Report by accountants and business advisors BDO LLP.

BDO’s Services Output Index, which measures business output within the sector, plummeted to 94.73 in July from 96.85 the previous month. This decline marks the first time that the services sector has shrunk since February 2010, and pushes the UK’s largest sector beneath the 95.0 point of contraction.

With services accounting for 80 per cent of the value created by the UK economy, this finding paints a gloomy picture for the country’s economic outlook.

Output from manufacturing, the UK’s second largest sector, remains above the long-term growth trend of 100, recording just a small decline from 100.82 in June to 100.16 in July. This indicates a more positive period for manufacturers, with a third of businesses in the sector recording increased orders in the second quarter of the year. However, manufacturing comprises less than one tenth of UK business and is struggling to keep output growth in the green.

The UK’s business output is at its lowest point in six years and also creeping closer to the point of contraction as Brexit paralysis takes its grip. BDO’s Output Index, which measures business output growth in the UK’s two largest sectors, fell to 95.34 in July from 97.29 in June. This marks a significant slide from this time last year, when output stood at 100.96.

These findings emerge against the Bank of England’s decision to raise interest rates by a quarter point to 0.75 per cent last week,putting rates at their highest level for almost a decade.

Related: What impact is Brexit uncertainty having on the UK economy?

Despite the fall in output, BDO’s latest report shows that firms remain resilient and are optimistic about the future. BDO’s Optimism Index, which shows how businesses expect output to develop in the next three to six months, increased for the second consecutive month from 101.85 to 101.96. This confidence was likely driven by rising employment figures, as well as the encouraging news in July for future UK and US trade. President Trump and the European Commission President Jean-Claude Juncker committed to reduce tariffs and non-tariff barriers on industrial goods, which is set to improve exporting conditions for UK firms.

Commenting on the Business Trends Report’s findings, Peter Hemington, Partner BDO LLP, said: “Uncertainty about Brexit and the increasing possibility of Britain crashing out of the EU without a transition deal is discouraging businesses from investing in the UK, with a resulting drag on productivity. The Bank of England’s decision to raise interest rates was designed to reduce inflation but has been carried out during a period of immense fragility for British business. I would urge the Monetary Policy Committee to act with caution when it comes to the possibility of any further rate rises.

“The government must also recognise the pressing need to protect Britain’s 26 million services sector workers as Brexit negotiations take place, particularly considering the UK has the highest share of services exports than any leading economy.”

Source: London Loves Business

Brexit and business poll: 3 in 4 finance bosses think firms will be worse off

July 31, 2018

Just one quarter of chief financial officers are optimistic about Brexit’s long-term impact, new survey suggests.

Many of Britain’s financial bosses are more downbeat about our prospects after Brexit than at any other time since the referendum, a cheery new poll has revealed.

Every three months, financial consultancy firm Deloitte gleans the views of more than 100 chief financial officers from major UK-based firms about leaving the EU.

Its latest results, which you can see below, show three quarters believe the long-term environment for business will be worse once we leave, with just 9% believing things will improve.

“In a sign of a more challenging international backdrop CFO concerns around protectionism and a slowdown in the euro area increased in the second quarter,” Deloitte said of the figures.

“Business sentiment continues to be buffeted by the news on Brexit. The mid-year position of the UK corporate sector is defensive and watchful.

“How that changes over the rest of 2018 will be heavily dependent on the unfolding negotiations between the UK and the EU in the next six months.”

Businesses have never backed Brexit: and opposition keeps growing

Now, there are a couple of important qualifiers to the above graph.

First of all, the survey was carried out between 3 June and 14 June, which is before recent talk of a (still unlikely) no-deal scenario hit the headlines, which is hardly likely to have improved their outlook.

That said, we should also point out that businesses have generally been opposed to Brexit all along.

As a case in point, the results of the first poll carried out by Deloitte (which you can also see above) showed just 13% were optimistic about the outcome while 68% were downbeat.

Related: What impact is Brexit uncertainty having on the UK economy?

So even though pessimism is undoubtedly at a record high amongst respondents, the mood isn’t a million miles away from the consensus two years’ ago.

Public faith in the Government is falling far faster

The same can certainly not be said for Theresa May’s Government.

In a separate poll by Sky News, it was revealed that 78% of the public think the Government is doing a bad job negotiating Brexit.

This is an increase of 23% since the poll was last conducted in March.

What’s more, almost two-thirds of those who voted in Sky’s poll now believe we’ll be landed with a ‘bad deal’ when negotiations are complete, up from 51%.

No one knows anything for certain, so what do you think?

Given that Brexit is so divisive, and new developments seem to sway opinion on an almost weekly basis, we should always be wary of making any meaningful conclusions based on snapshots of public (or business) opinion.

As always, we want to point out that the none of the above is an attempt to convince people one way or the other, merely to highlight a stat – or in this case stats – that we find interesting.

So how do the above views tally with your own? Answer the following two poll questions and we’ll soon see how loveMONEY readers’ outlooks compare, and please do share your individual views in the comments section below to explain why you voted the way you did.

Source: Love Money

No-deal Brexit would cost European Union 1.5 percent of GDP: IMF

July 21, 2018

European Union countries will suffer long-term damage equivalent to about 1.5 percent of annual economic output in case of a no deal Brexit.

Britain is due to leave the EU on March 29 next year, and Prime Minister Theresa May has yet to reach a consensus within her own Conservative Party on what future ties with the EU should look like, let alone broker a final deal with the EU.

The EU’s lost economic output in the case of no deal would cost the bloc around $250 billion, according to Reuters calculations based on the IMF’s estimate of the size of the EU economy excluding Britain this year.

Lost employment could total 0.7 percent of the EU workforce, or more than a million jobs.

The timing of the losses would depend on the length of post-Brexit transition arrangements, but would probably take five to 10 years at least to be fully felt, the IMF said.

While Britain and the EU agreed the outlines of a transition plan in March to largely preserve the status quo until the end of 2020, this deal has not been ratified and risks falling apart if there is no agreement on longer-term goals.

“The strength of the euro area-UK integration implies that there would be no Brexit winners,” the IMF said.

Ireland would be worst hit due to its close trade ties with Britain, followed by the Netherlands, Belgium and Luxembourg. Germany would also suffer due to industrial supply chains.

Looking at the trade impact alone, Ireland could lose almost 4 percent of its economy in a no deal Brexit, but some big countries like France, Italy and Spain would be far less hurt.

Britain has argued it is in the EU’s economic interest to take a flexible approach to Brexit, while the EU is concerned not to set a precedent of allowing a country to leave but retain the aspects of EU membership it finds beneficial.

Some British lawmakers say the country should leave the EU and trade on World Trade Organization terms – the IMF’s no deal Brexit scenario – if the EU makes too few concessions.

The IMF said its study showed a bigger negative impact on the EU from Brexit than some previous work, because it modeled the disruption to manufacturing supply chains as well as the effect of tariffs and reduced financial services trade.

The Washington-based body also urged the EU to continue to allow London-based ‘central counterparties’ (CCPs) that clear global financial trades to handle euro transactions – something the European Central Bank has resisted previously.

Related: Chancellor says no deal Brexit will damage UK GDP for years to come

“The potential forced relocation of a globally systemically important CCP to the EU should be viewed with great hesitation,” the IMF said.

The economic damage from Brexit would be minimal if Britain were to adopt the ‘soft Brexit’ Norwegian-style model of being part of the European Economic Area, which May has rejected as it would largely require Britain to stick to EU rules.

A free trade agreement for manufactured goods – which is closer to what May is seeking – would reduce long-term EU losses to 0.8 percent of GDP, or around $130 billion.

The IMF did not estimate the costs of no deal Brexit for Britain in this paper, which accompanies a two-yearly assessment of the EU, though earlier this week it downgraded its forecast for British growth this year to the weakest since 2012.

Before Britain voted to leave the EU, the IMF warned of a possible recession under an ‘adverse’ scenario, drawing criticism from Brexit supporters.

Earlier this year Bank of England Governor Mark Carney said Britain’s economy was around 1.5-2.0 percent smaller than it would have been if the public had voted to stay in the EU – not far from what the IMF forecast for a ‘limited’ Brexit scenario.

Source: UK Reuters

Our productivity problem is one of the biggest threats to the UK’s future

July 20, 2018

The productivity problem is one of the biggest threats to the UK’s future

If the summer of 2018 was remembered by one adjective, surely “hot” is a top contender.

Be it the weather, sporting contests, or the latest twists and turns in Westminster, it’s certainly brought some heated discussions and blood-boiling moments.

And talking of turning up the temperature, it’s nearly 55 years since former Prime Minister Harold Wilson made his famous speech to the Labour party where he reflected on the pace of change and its implications for business.

It was here that Wilson said that a new Britain would need to be forged in the “white heat” of a scientific revolution. Warning that there was no room for Luddites, he called for the country to embrace technology to ensure Britain’s future standing in the world.

Game-changing

Brexit discussions are not taking a summer holiday, so policymakers have once more been contemplating the UK economy’s long-term prosperity well beyond our scheduled EU exit in March 2019.

As with Wilson half a century ago, there’s a well-rehearsed mantra about seizing the new opportunities that technology is affording us to guarantee a bright economic future.

And it is a maxim that’s still right.

Technology is rapidly changing the global business environment out there and challenging established business models. Britain’s businesses need to utilise technology if they are to remain relevant to their customers and continue to grow.

But when we think about our future prosperity, we may find that many of the questions and answers lie very much in the present.

For example, many agree that the productivity puzzle poses far more serious risks to our future than Brexit.

Related: What impact is Brexit uncertainty having on the UK economy?

The UK has a long-standing productivity gap compared to many of its international competitors, including the majority of the G7 countries. In 2016, output per hour worked in the UK was a staggering 16.3 per cent below the average for the rest of the G7 advanced economies.

Productivity has been a problem for the UK long before the emergence of Brexit. In fact, since the 2007-08 financial crisis, productivity growth in the UK has been slower than most other developed economies.

So, what needs to change?

Face value

Clearly, technology remains important. The availability of funding, particularly for small businesses, is also key to economic growth and national productivity.

But there is a less feted, but equally important, resource of knowledge and expertise that already exists across the UK economy. And this is the business support infrastructure, which small firms look to for guidance on a daily basis.

You may associate business support with a government portal, a price comparison website, or an app on your phone.

But while these sources of information are certainly providing a new channel of easily accessible and affordable content for businesses, the overwhelming majority still seek face-to-face advice. Indeed, regular surveys still show that accountants are one of the most popular sources of advice, with solicitors and lawyers often following close behind.

Why? It makes sense to seek advice from those who understand your business.

Many business owners have professional advisers whom they meet and consult with on a regular basis – even when their questions and concerns fall well out of their adviser’s area of technical expertise, because they trust them to know where to look.

Joining the dots

Professional advisers of all disciplines play a vital role in utilising their own networks to put the right support in front of their clients. For example, small accountancy practices up and down the UK retain networks with those who are experts in funding, technology, employment law, and more.

It is both their expertise and networks that encourage businesses to invest, innovate, and grow.

A recent ACCA research report called Growing Globally revealed that 91 per cent of surveyed small and medium sized accounting practices have clients engaged in international activity, giving them a wealth of expertise and a support network. Ultimately this helps small businesses at all stages of their journey as they go global.

Re-energising the workforce

When thinking about how we solve the UK’s productivity problem, we need to look beyond money and technology, and ensure that we also harness the insights of those people who know our businesses and economy best.

The government’s recent Productivity Review found that, for too long, new and innovative policymaking has neglected to think about ways in which our business support landscape can be re-energised.

Understanding how those already providing advice and support can help develop new growth opportunities for businesses should not be seen as an afterthought, but central to any long-term strategy. It is their insights that may well hold the key ingredient towards creating scorching growth across the economy for years to come.

Source: City A.M.