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For months, businesses, consumers and authorities in both the UK and the EU have been waiting for the triggering of Article 50, which initiates the Brexit procedure. However, the lack of details due to the mantra "no negotiation without notification," means that uncertainty has likely been the most mulled over word in media right now.

Tomorrow is the due date for the UK to initiate the process, and the impact will be both immediate and long term, with lengthy negotiations to take place on the back of already what seems lengthy planning time. Finance Monthly has this week heard from numerous sources across the UK, from experts and specialists in several sectors, to businesses forecasting the opportunities and risks, on what might be once Article 50 is officially triggered. Here’s Your Thoughts.

Markus Kuger, Senior Economist, Dun & Bradstreet:

Theresa May’s plans to start Britain’s withdrawal process from the EU will set off a series of tough negotiations. The complexity of Brexit poses unique challenges, with overall sentiment and fiscal numbers continuing to paint a mixed picture: although forward-looking indicators are still reasonably strong, they have deteriorated since the start of the year and, simultaneously, inflation has registered its highest reading since Q3 2013. In this vein, it’s far too early to realistically assess the potential political and economic impact of Brexit – a real bone of contention will be the controversial departure bill, which may well see the UK pay in excess of £60 billion to officially leave the EU. With negotiations about future EU-UK trade relations expected to take longer than the two years available, it is likely that an interim agreement will have to be struck, and we do not expect full independence to be secured until the 2020s at the earliest.

The public’s interest will focus on what kind of deal Theresa May can strike with the EU, especially as the President of the European Commission, Jean Claude Juncker, has reinforced his position that the UK will not be able to ‘have their cake and eat it’. The EU still seems to have the upper hand in the upcoming negotiations, but a disorderly Brexit would also hurt the remaining 27 members of the bloc (although not as badly as the UK). From an economic perspective, the UK is actually performing just as well as it has done since before the country voted to leave the EU, but it’s unlikely that this strong growth will continue throughout 2017. Politically, events in Europe over the next few months could have an impact on negotiations; elections in France and Germany, should they unexpectedly go the way of anti-EU parties, will likely destabilise the two powerhouses’ control over the European bloc. For now, the priority is to start developing official plans for the UK’s departure from the EU. Businesses must monitor the uncertain and fluctuating economic situation that is to be expected over the next few years, and mitigate risks as best they can.

Mark Billige, Managing Partner, Simon-Kucher & Partners:

After the referendum, we have already seen a notable impact on prices, with the inflation rate before the vote hovering just above 0% but now nearing 2%, the official target rate of inflation in the UK. More price rises are imminent with Article 50 being triggered.

Research by Simon-Kucher shows that the severity of price increases passed to consumers has been gradually rising since the referendum. This means that as we move closer to the point at which Theresa May looks like she will trigger Article 50 at the end of this month, companies look set to pull the trigger on increasingly significant price hikes.

But businesses need to be careful. For instance, a survey conducted by Simon-Kucher shows that level of concern about price increases resulting from Brexit does vary within the UK, with 97% of Remain voters concerned about price increases, versus 57% of Leave voters. The research also shows that holidays and grocery bills are feared as the most likely culprits to face price increases. Many people, especially those who support Leave, take a dim view of companies attributing price rises to Brexit.

Chris Baker, Manging Director, UK Enterprise, Concur:

I think businesses have been pretty clear right from the outset about the deal they want with the EU once we're officially no longer part of the 'club.' What will be interesting is how corporate behaviour changes over the course of the next couple of years. We already know from reports that many are stockpiling cash rather than investing, but a new development is also emerging. Many of our customers are reviewing their supplier strategy with a view to forming partnerships with UK companies in order to reduce Brexit risk and turbulence from the FX markets.

Such a strategy makes sound business sense, but longer term if the UK withdraws into itself commercially it will be much harder to forge trade agreements with China, India, the US and of course the EU. To get the best deal we have to be seen as a global economic force, not an island. Businesses need tangible incentives that will give them confidence to invest both in the UK and abroad.

Michelle McGrade, Chief Investment Officer, TD Direct Investing:

Rising employment continues to propel the Eurozone region towards 2% growth. Add in inflation and operational gearing, and growth at a company level starts to look interesting. There are some selected good structural growth stories across Europe. No one knows how key political events are going to transpire, and what the stock markets’ reaction to those events, or indeed the effect on the euro, will be. As investors, it is better to stick to what you do know and focus on a long-term investment horizon.

Rob Halliday-Stein, Managing Director & Founder, BullionByPost:

We've got a lot of uncertainty at the moment and when you look at things and people tend to see gold as a good thing to hold during those times and if you look at Brexit, for example, even though it has not actually happened yet, that could still have a big impact as far as business is concerned. Our most profitable times are always during times of uncertainty.

As a business, somewhat sadly, we always tend to do well at times like that. No one really knows how this Brexit is going to play out over the next two years once Theresa May pulls the trigger to trigger article 50. There are a lot of unanswered questions and a long road to go down. We don’t yet know what is going to happen to UK and EU nationals working and living abroad and those from other European countries that are living and working here in the UK. Indeed, as part of our business, we do employ a few EU nationals so the future for them is somewhat uncertain.

And then there’s the bill for leaving the EU and the estimates are that that could come to around £50bn for our share of liabilities. What will happen to the EU laws that we have been bound by for more than 40 years? Are there similar bills going to have to be rushed through parliament? Theresa May is really going to have to tread carefully here to get the best deal for us upon leaving the EU – otherwise this could end up costing the country dearly.

For me balance of payments is a big issue for then UK right now. We need to be selling more goods and services than those that are bought in from elsewhere. The UK’s 2016 international trade statistics released this month show the deficit of Britain’s balance of payments increased by nearly £10 billion, and is currently just short of £40 billion. This is something that simply needs to be addressed when we go it alone.

However, this is all good for business. With all the uncertainty in the world people still know there's a very strong case for holding gold as part of their portfolio. It will, at the very least, keep its value and preserve wealth. It may spike much higher than that at points of crisis and then it tends to bounce back a bit.

Mark O’Halloran, Coffin Mew:

Over the next two years the ‘Great Repeal’ will become as a common a phrase as ‘Brexit’ has been in the last two. But Great Repeal Bill is misleading as the government’s key task will be enacting legislation, not getting rid of it.

The adoption of EU legislation is not going to be a smooth process. It is going to be complicated by an expectation that negotiations between the UK, the EU and its member states won’t reach resolution till near the end of the two years, potentially leading to a mad rush to get laws adopted.

Patent law is a prime example of an area that is going to be of shared concern for many areas of UK industry going forward. The Government still appears eager to move forward with both a unified European patent court and a unified European patent, and there is logic for this. British businesses will want the security of knowing that their patents are protected as widely as possible, without the hassle of having to prepare and file applications in multiple countries.

As it is, it is far more expensive to protect designs through patents in Europe than in the US and the new unified European patent court and a unified European patent is aimed to address this. The price we may need to pay, however, is continued EU political influence through, perhaps, the involvement of the ECJ. Despite Brexiteer assurances, we will not be able to have all our cake and eat every morsel of it.

There is much uncertainty in how the extraordinary challenge of Brexit will be handled; and two years for global events to take unexpected turns. At first, don’t expect all that much to change. Theresa May’s Government will be closely watched and scrutinised over the next two years and their remit will be to simply ensure we have working legislation in place for us officially leaving. It is once this formal process is complete that the fireworks will fly.

Owain Walters, CEO, Frontierpay:

We expect to see some initial volatility or “noise” in the market once Article 50 is triggered at the end of the month, however, there won’t be any significant developments until we learn more about the detail of the negotiations and any deals become clearer. Our advice to businesses is that they take advantage of the remaining two years in which we will have access to the single market to prepare for life outside of the EU. Laying the necessary groundwork to ensure that they have access to international markets and currencies upon our departure is the best way for businesses to ensure that they are successful post-Brexit.

Alex Edwards, Head of the dealing desk, OFX:

When Article 50 is triggered, it will doubtless have an economic impact. But although the currency market is often the first to react to political developments, we’re unlikely to any significant moves on the day itself.

When the Prime Minister first announced that she would trigger Article 50 on 29th March, the pound was quick to fall against the US dollar. In the end, this was only a minor blip in sterling’s recent gains – on the whole, traders have been focusing on positive economic data from the UK, along with rising headline inflation and a hawkish stance from the Bank of England.

Investors know that Article 50 is coming, and to a point, the market has already priced in a lot of the potential negatives that could arise around the coming Brexit negotiations.

In the longer term, the strength or weakness of the pound will largely depend on the progress of EU negotiations, rather than monetary policy. If negotiations are seen to be going well for the UK, then this will undoubtedly be positive for sterling, particularly against the euro. If they are perceived to benefit both the UK and EU, then this will still be favourable for the pound, as it would bring some certainty to the market. After all, it’s traditionally political and economic certainty that’s good for a country’s currency.

Failed negotiations, you won’t be surprised to hear, will not be positive for the pound. Any negotiations will also need to be voted on, certainly on the European side, and possibly in Parliament here. Like any vote, if we know it’s going to be tight, this creates uncertainty – not good for either the pound, or the euro. On the other hand, if the outcome is predictable, then the market reaction will likely be mild when the deal is passed, perhaps even supportive for the pound, as investors buy the fact rather than the rumour.

Overall though, there are still many unanswered questions about what shape these negotiations will take. It’s uncertain, and we know what uncertainty means for a currency. We’re already seeing this affecting exchange rates – the pound has been at historic lows since the Brexit vote, and has been under and close to 1.20 against the US dollar for some time.

When Brexit negotiations begin, clarity should start to be restored. As such, there may be some positive surprises in store for the pound over the next two years – the risk, as they say, could well be to the upside.

Robert Hannah, COO, Grant Thornton UK LLP:

More than nine months after the referendum result, the lion’s share of the government’s and the media’s attention is still being granted to big business brands. However, we know that mid-sized and smaller businesses are the strongest growing sections of the business world and form the backbone of Britain’s economy as significant employers and economic contributors, with strong growth projections.

Brexit should be seen as an opportunity for these businesses to open up to new, more competitive, markets and the catalyst for exploring how we unlock overseas opportunities beyond the EU.

Seeking out areas where good practice is already in place and learning from it, is key to this. A good example is Scotch whisky, a leading UK export enjoyed globally worth £4bn a year. The sector has had an excellent champion in the Scotch Whisky Association, who work hard to ensure fair access across all markets and the industry, and has built an enviable distribution network throughout the globe.

If the British government is serious about getting match fit for the new global economy, they could do a lot worse than sitting down for a dram with Scottish whisky producers to understand how we can get our mid-sized and smaller businesses set up for success.

Rob Douglas, VP of UK and Ireland, Adaptive Insights:

Although the triggering of Article 50 was arguably inevitable it is still likely to cause fluctuation on the global markets and businesses need to be prepared. At the very least, businesses are at risk of the impact of currency fluctuations, but they also face years of negotiations and debates, the outcome of which will have a knock-on effect on finances.

Above all else it is important for finance teams to carve out a degree of stability for their business. The best way to do this is to take an active approach to planning and ensure that they are as agile as possible to respond to wider economic changes. For example, ‘what if’ scenarios that model currency changes can give the finance team and business greater insight into where they may see hikes in costs, which, if not adequately prepared for, could be fatal to a business.

What’s more, finance teams also need to be sure they are considering the entirety of the business. For example, business drivers are not exclusively financial. Non-financial KPIs need to be worked into models if the team is to get an accurate view of the business both now and how it will fair in differing economic environments.

Article 50 undoubtedly spells a volatile time ahead for the UK business community, but successful corporate performance will depend on ensuring the business is as agile as possible. A finance team needs to have its hands on all the business levers, understanding how it can respond to changing market conditions to preserve–and even enhance–the health of the business. Done in the right way, a finance team will cushion its business when times are bad and make it thrive when times are good. It is only with an accurate view of the business, being prepared and predicting possible threats and opportunities, as well as modelling these across the whole enterprise, that a finance team can truly steady the ship in the tumultuous post-Brexit world.

James Roberts, Director, Sanctuary Bathrooms:

As an independent business owner who deals internationally and domestically, we’ve seen rising costs from suppliers since the announcement of the Brexit vote. The rise has been on average around 7%, but as the dollar and euro start to level out, this should hopefully reduce. This has impacted UK consumers, as we’ve unfortunately had to factor this increase into our prices.

One unseen benefit of this upheaval has been an increase in orders from other EU countries, who are taking advantage of the weak pound to grab themselves a bargain.

Frustratingly, we’re still in the dark in regards to the full impact of Brexit, but early indicators are a mixture of positive and negative. It’s difficulty to say with any certainty what post-Brexit Britain will look like as it’s uncharted territory.

Before the referendum last June, many economists produced gloomy forecasts which have since been proved wrong. Consumers' confidence has not suffered, and, by and large, things have gone on as before. Personally, we are quietly confident that our business may benefit from a boost in EU orders in the near future which will sufficiently counter any losses in sales domestically.

Michael Hatchwell, Director, Globalaw and Senior Corporate lawyer, Gordon Dadds:

When the UK Government triggers Article 50 there will be no immediate changes in law or treaties; therefore a trigger of Article 50 will not in itself have any economic effect. Markets may experience some movement, but there will be no immediate effects as the United Kingdom remains part of the EU until it leaves.

Once triggered, the UK will have two years to agree not only the exit terms but also the principles for future relations between the EU and the UK. When one considers the vast array of issues to be thought through and covered, bearing in mind that we have a history of some 40 years of integration, and that major issues such as financial passporting and access rules for UK and EU citizens (both ways) are but the tip of a huge iceberg, it is not surprising that many are of the view that there is not much chance of negotiations concluding in two years.

Two years from the trigger of Article 50 the EU treaties will cease to apply, unless that period is extended by the European Council with the agreement of all 27 other member states.

If no Free Trade Agreement (FTA) is agreed and two years expire without extension, because the UK is a member of the World Trade Organisation (WTO), the EU will treat the UK as it does other WTO members, such as Brazil, Russia or the USA. The same EU tariffs will have to apply to the UK because it will be illegal, absent an FTA, not to do so.

Given the volume of UK/EU commerce, this fallback position will not be welcomed by either side.

Ultimately, because nothing happens immediately and because nobody knows what the outcome of negotiations will be as no country has previously triggered Article 50, the only certainty over the coming 2-3 years is that there will be uncertainty.

This is problematic for those making key investment decisions, as well as in terms of important choices that need to be taken by individuals and companies whose lives and business are entirely intertwined with the EU.

So, can big business afford to wait? Absent some clear indications on key issues, it is likely that businesses will need to anticipate the prospect of trade between the UK and the EU not remaining as easy as it is now. If moving certain functions to another EU location now resolves that issue, then why would such a step not be taken? Of course it may prove to be an unnecessary step, but the risk of not acting may not be acceptable. The decision will of course depend upon a company’s particular trade and issues.

Further, companies are aware that it is unlikely the 27 other member states will make negotiations easy for the UK as they do not wish to encourage any other countries to leave. They may also want to attract as much business as they can from the UK to their own states and play on the uncertainty that will exist.

As regards rushing into new treaties with non-EU countries such as the USA and China, the EU has made is quite clear the UK cannot do so until it has left the EU, creating a potentially longer period of uncertainty before treaties with our key trading nations can be agreed.

It is therefore quite likely that if Brexit does prove to be of benefit to the long-term interests of the UK, it is unlikely that the short-term unavoidable and inevitable uncertainty affecting so many key critical issues will not have a real and negative short-term impact on the UK economy. Put another way, it would be quite surprising if it did not.

The government and the Bank of England will have to act carefully and decisively to ensure that they make the UK a seriously attractive place to do business to counteract the uncertainty that will exist.

Gary McIndoe, Latitude Law:

When assessing a business's needs from an immigration perspective, Brexit creates the potential to incur real financial burden. Changes to existing practices need to be identified and managed as soon as possible, both to minimise costs and to streamline processes (and perhaps even achieve financial savings). As a starting point, business should assess their exposure to the impact of Brexit - some businesses will employ a far higher proportion of migrant workers than others, particularly if in a sector such as construction, hospitality or manufacturing. Review your workforce now and determine what proportion of current employees might be affected. Your business can take steps now to calculate and secure staff retention.

The next step should be to limit the immediate damage - we do not know whether the UK government will guarantee the rights of EU workers already in the UK, but we can be reasonably confident that some sort of provision will be made for those who already have employment, particularly if long-term. Speak to your existing workforce about their feelings towards Brexit, they might need guidance on securing their position. Employers can run workshops for staff members to discuss their eligibility for securing confirmation of residence rights. While this can incur an initial financial outlay, staff retention rates may benefit from a proactive approach. Many EU nationals do not hold a UK-issued residence card, but it would be a good idea to apply for one now. In some cases, a permanent right of residence can be confirmed immediately, but for those who do not satisfy those requirements, a time-limited card from the UK government is likely to give the best protection and offer a level of reassurance for employer and employee alike.

Once you have secured your current workforce, you should consider future recruitment needs, including where your staff are currently recruited from and how might the end of ‘free movement’ affect your hiring strategy. Depending on the scheme on which the government chooses for future EU migration, large-scale recruitment from specific countries may become costlier and more complicated. Familiarise yourself with the schemes applicable to non-EU migrants; formal sponsorship might never be a requirement for EU nationals, but knowledge of more flexible measures both past (such as the Seasonal Agricultural Workers Scheme) and present (e.g. Tier 5 Temporary Workers) could be of use to your business as Brexit negotiations continue.

Finally, you need to prepare your HR team. This will depend on the measures introduced when Brexit takes effect, but your HR team’s processes need to be checked to avoid illegal working may need to change. Consider reviewing your personnel files now to update ID documents and best protect yourself from illegal working penalties in years to come. Future document requirements for EU nationals are not yet known, but reintroducing document checks (or re-familiarising your team with the requirements) at an early stage might help you to transition to a more robust system required from 2019, and save costly penalties in future.

Declan Harrington, Financial Advisor, Savage Silk:

We expect that the economic and social effects of Brexit won’t become completely clear for at least six years. During this period of adjustment, we believe that the majority of companies and even individuals will see very few significant changes in their circumstances.

The only certainty is that fruitful financial opportunities will still exist once Article 50 has been triggered, and businesses should not use Brexit as an excuse to shy away from jumping on them. We are already working with companies and individuals to help them identify these opportunities and take advantage of very benign investment and credit conditions.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

The latest House of Lords Brexit report focuses on trade in non-financial services and concludes that a comprehensive Free Trade Agreement (FTA) with the EU is needed. To enable UK companies to continue to operate within the EU, without serious non-tariff barriers, this would need to include a range of complex mutual provisions.

In the absence of Single Market membership it will be much harder to provide for liberalised trade in services than trade in goods.

A 'no deal’ scenario, or a UK-EU trade deal which gave no special consideration to UK non-financial services, would risk serious harm to sectors such as professional business, digital, broadcasting, aviation, and travel services.

In aviation and broadcasting services, WTO rules do not provide for trade with the EU at all. Instead, UK firms would have to rely on outdated and restrictive agreements, so there is no adequate ‘fall-back’ position in the event that no deal is reached. Businesses could be forced either to re-structure or relocate their operations to the EU27.

The Government has also under-estimated the reliance of the services sector on the free movement of people. In forthcoming immigration legislation, the Government must ensure that it retains sufficient room for manoeuvre to negotiate an agreement on this key issue.

These are among the conclusions of the report, Brexit: trade in non-financial services, published today by the House of Lords EU Internal Market Sub-Committee.

Commenting on the report, Lord Whitty, Chairman of the EU Internal Market Sub-Committee, said: “The UK is the second largest exporter of services in the world and the EU receives 39% of the UK's non-financial service exports. This trade is critical to the UK's economy as it creates employment and supports goods exports - we can’t afford to lose that.

“To protect the UK’s status as a global leader of trade in services, the Government will need to secure the most comprehensive FTA that has ever been agreed with the EU. Walking away from negotiations without a deal would badly damage UK plc, particularly in sectors such as aviation and broadcasting which have no WTO rules to fall back on.

“Given the consequences of a 'no deal' scenario and the length of time agreeing an FTA will take, the Government must prioritise securing a transitional trading arrangement with the EU. This would operate as we leave the EU in 2019 until a full comprehensive FTA with the EU can be concluded. This re-iterates the recommendation we made in our report, Brexit: the options for trade, published in December 2016.”

The Committee concluded that, in negotiating a UK-EU FTA, the Government should seek to secure market access and specific reciprocal arrangements in a number of areas. The following are examples:

The continued movement of workers and service providers in both directions is seen by the UK’s booming services sectors as necessary to support growth.

In a ‘no deal’ scenario, WTO rules would not sufficiently facilitate the cross-border movement of people nor would they ensure the free flow of data. Rules on market access also differ between EU Member States - increasing the regulatory complexity for UK firms.

The Government must narrow down uncertainty so the UK’s services sector can prepare themselves to survive and flourish post Brexit.

(Source: House of Lords)

In a keynote speech to the American Chambers of Commerce, in Brussels last week, Fiona Dawson (Global President of Mars Food) warned that failure to reach a new UK-EU free trade agreement for food would threaten jobs and lead to higher consumer prices.

Noting that protectionist trends are threatening to undermine global trade and make the world less connected, she noted that the future relationship between Britain and the European Union is a critical test as to what future will unfold. Specifically she:

Jobs and Consumers Must Come First

Key extracts published pre-speech:

"Brexit clearly poses some problems, but the fact is Britain has decided to leave the EU and the task now is to look forward and ensure that the decisions taken from this point forward achieve the most positive outcome for all concerned."

"The absence of hard borders with all their attendant tariff, customs and non-tariff barriers allows for this integrated supply chain, which helps to keep costs down. The return of those barriers would create higher costs which would threaten that supply chain and the jobs that come with it."

"If Britain ends up trading with the EU on the basis of WTO rules, 'Most Favoured Nation' rates would come into force. In the area of confectionery that alone would mean tariffs of around 30%. For animal products, it would be 20%; for cereals over 15%; and for fish and fruit over 10%. Significant new tariffs would also apply outside the food sector, notably in the area of clothing and textiles. Unfortunately there is no way that those costs could be absorbed without flowing through to consumers in the form of higher prices."

"It is a fact that Europe after Brexit will remain a critical market for UK exports and likewise the UK will remain an important market for goods produced and manufactured in other European states. There can be no economic advantage either side restricting trade with a large market situated on its doorstep. In simple terms, if the UK and the EU fail to agree on a new preferential deal, it will be to the detriment of all."

"Reaching an agreement will require compromise and an appreciation of the economic interdependency between the UK and EU. It requires an acceptance of the benefits that common regulatory standards and the movement of labour can bring, and an understanding that the imposition of significant trade barriers would ultimately hurt everyone and undermine, rather than strengthen, European unity."

"Other member states should remember this is not about 'punishing' Britain for her decision to withdraw but rather about finding the best solution for European and UK workers and consumers. That consideration must come first as we build the future."

(Source: Mars, Incorporated)

Despite finishing 2016 reasonably strongly, the outlook is bleak as the weak pound continues to push up inflation. The UK risk outlook is expected to deteriorate still further from the two downgrades made since the EU referendum, and although uncertainty looms, the immediate impact of the vote has already taken shape. But what about its impact in the long term?

To answer the question about what Britain’s industries, markets, and sectors beyond financial services will be affected in the long run, Finance Monthly has heard ‘Your Thoughts’, and formulated a rundown of your expert opinions on what to expect months, even years from now.

Charles Fletcher, Head of Analysis, Cogress:

We’ve now entered the month Theresa May pledged to trigger Article 50 and initiate the UK’s exit from the European Union (EU). This means it’s time to critically assess the long-term impact of Brexit on the UK’s property market. The shocking result of the 2016 June referendum introduced a greater degree of uncertainty to the UK economy and property market. The weakened sterling and rising consumer inflation combined with the higher stamp duty tax has meant buyers, investors, and developers are exercising more caution.

Over the next few years, weaker economic growth and increasing pressure on spending power will undoubtedly dampen some housing demand and consequently, lower house price growth rates. It’s hard to predict what the long-term effects of Brexit without knowing the kind of trade deal we secure with the EU. However, that’s not say there aren’t already signs giving us an indication of what the future of the property market will look like. In fact, the latest Halifax House Price Index showed just how resilient UK property prices have been in the face of multiple tax changes and the looming Brexit. There’s good reason to be cautiously optimistic about what the state of the property market ten years on from Brexit.

Firstly, low levels of supply will continue to buoy housing prices and stoke buyer demand across the UK. People looking for better yields and investments will look for new locations as business slows in central London. This means we’ll see greater interest in areas & cities outside inner London like Oxford, Cambridge, Manchester, and Bristol. Compounding this is the vulnerable, depreciating pound that has made the exchange rate on UK property very favourable for foreign buyers in China and the Middle East. Even if domestic and EU buyers remain indecisive about whether to dive into the property market, many other foreign buyers see central London and other UK cities as stable property assets in the long-term.

We have also heard overblown fears over the number of banking and business jobs that the country will lose when we exit the EU. The UK remains one of the top three cities to invest in (behind the US and China), partly attributed to London’s global position as a leading business and cultural hub. While Brexit may have some influence, there is no evidence to suggest that London’s position is likely to change in any dramatic fashion over the next ten years. As the indicators for our nation’s economy continue to be strong, we will see the same in the property market.

While 2016 made clear the prediction game is never certain, the strong fundamentals of the UK’s property market will help it navigate the short-term volatility Brexit will bring to our economy. Meaning Brexit is actually an opportunity for buyers & investors willing to take the long-term view on a market that has historically been the nation’s most resilient in times of turbulence.

Jim Prior, CEO, The Partners:

Brexit has not yet happened and its terms are currently completely unknown so it’s impossible to predict how long its effects will last. What we may be able to predict, however, is the effect of the period of post-referendum, pre-Brexit limbo that we are in and likely to remain in for some years.

On that, although there are good arguments to the contrary, I am choosing to take an optimistic view. I predict that in the next few years, British businesses will act with caution but will find themselves periodically surprised by the resilience of the economy and the enthusiasm of the British consumer and, in that light, will be sufficiently reassured to invest more then they currently expect to and will find growth and profit ahead of forecast.

Beyond that, as elections take place across Europe and the Donald continues to tear up the US rule book, Britain may find itself in the ironic position of enjoying a period of greater certainty than other major nations because our decision is made and our government is stable – thanks to Jeremy Corbyn’s counter-productive efforts there’s virtually no chance of a change of government here – whereas theirs are anything but. That could be good for inward investment in the short and medium term even if longer-term doubts remain.

And the long-term is by no means guaranteed to be bad: If Britain can indeed prosper calmly through the next couple of years while other economies thrash around in the political sea, we may then find that our negotiating position strengthens, and the deals we strike might be better than we initially thought. I still hate the idea of Brexit at an ideological level but, in support of democracy and national self-interest, I am looking positively ahead.

Markus Kuger, Senior Economist, Dun & Bradstreet:

A post-Brexit world is not something that is easy to predict. Currently, Pound Sterling fluctuations, inflation surges and political uncertainty are all pieces of a jigsaw that are very difficult to piece together. The consensus of an uncertain picture is therefore quite bleak, but it’s important for businesses to remain calm in this period of transition.

However, despite business’ uncertainty in a post-Brexit era, there has been cause for optimism. Global mergers and acquisitions haven’t slowed (the recent news that Sky PLC has agreed to a £18.5bn takeover by 21st Century Fox supports the claim that businesses are willing to continue in the same vein) and there has been a surge in manufacturing exports since the vote to leave the EU. However, the outlook has been gradually deteriorating since the start of the year; sales figures in the retail sector fell in December and January, while Purchasing Managers’ Indices in the manufacturing and services sectors have eased, yet still stand comfortably in growth territory.

Regardless of this, the full ripple effect of Britain’s exit from the EU has not yet been felt for one clear reason; Britain hasn’t actually left yet. But what happens after could shape the future of the country.

From a trade perspective, tariff-free access to the EU’s common market could be impacted if talks break down about a free trade agreement and World Trade Organisation (WTO) trading rules are implemented instead. This change in tariff policy could cause some challenges for UK companies involved in sourcing from the continent (as production costs would go up) or selling to it (as companies would need to increase sales prices to cover the tariffs). Positively, Dun & Bradstreet’s baseline scenario still expects trade across the Channel to be carried out tariff free once Brexit is completed.

The true financial landscape will likely not become clear until 2019, once the UK has fully exited the European Union. Financial institutions will need to take stock and react accordingly to the swaying of the financial markets which will no doubt prove problematic to begin with. Over the short run, it seems likely that the government would try to counterbalance the negative economic impact of a hard Brexit by increased spending (in order to make its policy a success and maintain public support). Over the long run however, public services (including schooling and healthcare) might have to be scaled back even further in order to reduce the excessive government deficit to more sustainable levels.

Depending on what sort of deal is struck between London and EU, it is impossible to say when the country might return to ‘normality’ again. Businesses must, however, remain calm and not panic. After the implementation of Article 50, businesses must remain cautious until the pieces of the Brexit jigsaw are slowly put together again – a process that we expect to begin after the German elections in September 2017.

Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University:

Most economic forecasters are united in thinking that Brexit will make the UK worse off in the long run than it would have been staying in Europe. The reasoning tends to be that European competition has enabled the UK to specialise in what it’s good at – for example, financial services – boosting productivity, wage rates and national income. Also, the UK has benefited from foreign firms locating here as a gateway to European markets. Brexit is expected to unwind these benefits and, for now, there is huge uncertainty over what trading arrangements might replace our membership of the European club.

However, even if the nation as a whole is worse off, the impact on households is likely to be uneven. Trying to predict winners and losers is like looking into a muddy crystal ball, because it will be impossible to separate pure Brexit effects from policy responses. Crucial for households is what happens to inflation and interest rates.

Inflation is already on the rise due to a sharp fall in the pound (currently around 12% lower than its pre-Brexit-vote level [1]). This reflects reduced confidence in the UK’s economic future and pushes up the price of imported foodstuffs, oil, clothes and all the other foreign goods and services we love. Wages are failing to keep up, so household incomes are expected to be squeezed. If Brexit does reduce productivity, then depressed wages could persist for a long time.

Inflation is sometimes called a hidden tax because it erodes the value of fixed amounts of savings and debts, so tends to benefit borrowers but is bad for cash savers. The impact could be dampened if interest rates were to rise, but, so far, the Bank of England has suggested that it will not try to rein in inflation by raising interest rates because this could tend to depress economic activity and cause unemployment. However, loose monetary policy tends to push up asset prices, so households with property and equities may be winners.

Over time, the biggest Brexit effect may be shifts in employment with some households facing job loss, while at the same time new job opportunities open up. For example, the financial services sector may shrink and foreign car manufacturers may shift production elsewhere. Meanwhile, jobs with exporting firms could mushroom, since the lower pound makes the foreign price of exports more competitive. Households that are likely to benefit most are those who are willing to be flexible and go wherever the Brexit tide takes them.

[1] http://www.bankofengland.co.uk/boeapps/iadb/newintermed.asp

Howard Bentwood, Founder, Cedar:

As Brexit negotiations drag on despite the rapid approach of the ‘deadline’ to trigger Article 50, the financial world remains rife with uncertainty. Whilst news that the UK economy grew 0.7% in the fourth quarter of 2016 has been attributed by some to a ‘Brexit Bounce’, it is by no means the whole story. This better than expected economic growth has been associated with a rise in household consumption and manufacturing, with services and construction also ending the year well. However, it is worth noting that over the same period, investment was down 0.9% on the previous year and trade remained largely unchanged.

The next few months are sure to see further developments and unexpected economic revelations, as companies trade under changeable conditions. In the run up to the Brexit vote, Cedar saw many clients understandably adopting a more cautious position on hiring; many have taken an interim approach, by recruiting senior support staff on a flexible basis rather than committing to permanent headcount. Amid the turbulence of the current political and economic environment there is arguably an even greater need for top-tier expertise on the board to steer businesses through the uncertain waters. To this end, we have seen a rise in demand for interim Finance Directors, CFOs and CPOs in the last few months. Small and middle-sized companies in particular can benefit from an experienced interim practitioner who can bring their commercial acumen and insight to the table at a critical time.

In discussions with clients and staff, I often hear people wondering when things will ‘return to normal’; I believe that over time the world of finance will simply adapt to a ‘new normal’. Forward-thinking companies can be instrumental in shaping this future through the creation of their own ‘Department for Brexit’, tasked specifically with adjusting their strategy to match the new risks and opportunities faced by Britain as it exits the European Union.

Martin Campbell, Managing Director, Ormsby Street:

Trying to predict when things will be ‘normal’ again post-Brexit is nigh-on impossible. The business landscape will change forever and it is hard to see when things will go back to how they were. I suspect we will look back regretfully at our decision to leave the EU, especially given the Prime Minister now seems set on a hard Brexit. Leaving the EU will have many long-term repercussions, culturally, politically and of course economically. Europe is a key market for many UK businesses, with 96% of British SMEs who export, exporting into Europe. Being unable to trade so easily will inevitably have an impact that could last for years and years.

The uncertainty facing the business environment at the moment is very difficult and is certainly causing challenges in my business where we work with SMEs and large banks - both are playing a ‘wait and see’ game and avoiding long term commitments. But recent developments revealed in a series of interview with City of London business leaders has shown the real fear that the loss of banking jobs to EU countries could threaten financial stability across the continent. The immediate loss of a few thousand jobs is in itself not necessarily a disaster, but there could be a major knock-on effect in terms of financial stability if common regulation is not agreed with the remaining EU members.

The movement of labour across the EU has also been a real positive and there are many UK businesses who rely on the availability of a workforce with diverse skills from across the EU to grow their businesses successfully in the UK. Ormsby Street for example, now employs 12 people, three of whom are from other EU countries. Without this access to talent, future growth could come under threat and there are serious questions about how UK business can replace that talent in the long-term.

Shilen Patel, Co-Founder, Independents United:

As we head for Brexit the future of the country’s economy is naturally being called to question. But with uncertainty comes the opportunity for change and what better time for the UK to invest in its community of emerging entrepreneurial talent and product innovation?

Yes - the glamorous tech sector is in the middle of a funding frenzy, with over £6.7 billion invested into UK tech firms in 2016, but what about the country’s food and drinks sector that’s worth around a staggering £100 billion and represents manufacturing’s most profitable sector?

The fact is, as we head for Brexit, we’re going to need to stand on our own two feet and backing the full spectrum of our entrepreneurial talent will become a necessity. It will no longer be enough to invest in just the tech sector. We’re not Silicon Valley and we shouldn’t try to be. Britain’s heritage lies in product manufacturing – we’re really good at it. After all, the UK is the birthplace of the Industrial Revolution.

In the long-term, Britain’s food and beverage sector could be the lynchpin of a robust economy for a breakaway UK. Broadening our horizons to look at more than just tech start-ups will give our economy the chance to not only survive, but thrive. It's imperative if we want to boost our economy and stave off competition from abroad that we invest in our grassroots companies both inside and outside tech.

As we exit the bloc we need to give credence to our manufacturing sector. Last year alone, 16,000 new food and drinks products launched, which makes investing in FMCG something of a no-brainer. Our expertise as a country sits in the realm of making things. Food, drink, beauty, health, cosmetics and wellness – manufacturing is our heartland and where we face the least outside competition.

It’s not to say that we shouldn’t invest in tech, but rather that we shouldn’t put all our eggs in one basket if we want the post-Brexit economy to flourish over the next decade.

Mark Palethorpe, CFO, Cox Powertrain:

As a small innovative British engineering business, we’re watching the outcomes of Brexit closely. The EU’s Horizon 2020 programme currently provides £2.2bn of funding for universities, research groups and businesses taking on high-tech engineering challenges. That’s a large sum that the UK Government will need to find if the UK’s innovators are going to maintain their efforts. We are encouraged by the UK Government’s stated industrial strategy of getting funding to the small disruptive technology businesses that will be the future growth engine for the UK. We’re keen to see that materialise in terms of funding for SMEs not just for the big corporations with lobby power.

Cox Powertrain is working on a ground breaking new engine and relies on the highest quality talent. Like many British businesses, our team is international, driven by a need for the best quality people available. Post-Brexit, we hope any new visa processes remain straightforward, allowing us to continue to draw on the best possible talent.

On a positive note, the weakening pound will make our engine cheaper to purchase, once available, to overseas customers. Also, a move away from the EU could provide British businesses with a first mover advantage to do mutually beneficial deals with major economies like the US. If the UK Government is positive and proactive, trade deals will be possible and profitable.

Engineers at the forefront are used to change. We’re motivated by it. We hope that Brexit provides as many opportunities as challenges for our business.

Stephen Sumner, Managing Director, Explore Wealth Management:

Brexit is pretty much unchartered territory for everyone and I think it is difficult to predict what the long-term impacts on the UK might be. I think the one thing we can say for sure however, is the likely effect of the uncertainty that Brexit brings to both the markets and clients’ portfolios in the short term.

Each time news hits the markets of either side (i.e. the UK or the EU) making progress with how they stand post Brexit, the relative perception of this news being either positive or negative in nature will cause the markets to react either upward or downward, thus affecting clients’ portfolio values. This will continue to impact clients and their portfolios for as long as any doubt remains as to how the financial aspect of Brexit will affect UK based businesses and the UK and EU financial markets as a whole.

Ultimately though, post-Brexit, the fundamentals of advising clients are unlikely to have changed. As long as investors are suitably diversified in line with their views on risk and overall investment objectives, the effects of Brexit long term we foresee as being no more dramatic than other events in history which have caused short term issues, such as the recent banking crisis.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!

With the implementation of GDPR on our doorstep, companies risk serious vulnerability in the face of data protection. This week Finance Monthly has heard from Rafi Azim-Khan and Steven Farmer of Pillsbury Law, who gave us a rundown on how you need to prepare for the regulatory changes.

From the debate about the UK’s ‘Snooper’s Charter’, to a number of high-profile cyber-attacks and the wrangling, both legal and political, over the abolition of the EU-US data sharing treaty, Safe Harbour, data privacy has remained firmly in the media spotlight in recent months.

Following the most significant overhaul of the EU data protection regulations in recent years set to come into effect with the introduction of the EU General Data Protection Regulation (GDPR) in May 2018, this trend looks set to continue.

The GDPR rips up the existing legal framework and provides for the imposition of heavy fines. Equally seismic is the fact that the new rules have an extra-territorial reach, catching companies who traditionally did not need to prioritise data protection laws.

Significantly, however, few businesses are reported to have actually looked at what they need to do to ensure compliance under the GDPR. As the time until enforcement dwindles, it is essential that firms act, as the UK data protection regulator has said herself. So what do companies actually need to be aware of?

The letter of the law

The GDPR replaces the current EU Data Protection Directive 95/46/EC. As a Regulation, and unlike the old law, the new laws will be directly applicable in all EU member states.

Specific changes introduced include the following:

Of course, with the UK set to leave the European Union, there is much ongoing discussion about what the post-Brexit regulatory regime may look like. It is generally accepted, however, that after the UK leaves the EU, UK laws will nevertheless track the GDPR (e.g. via some form of implementing legislation or a new UK law which effectively mirrors the GDPR). In other words, even if you are purely a UK company, or you are outside the UK and targeting UK consumers only, you should not ignore these changes on the basis Brexit is some sort of get out of jail free card.

Who needs to comply?

All organisations operating in the EU will be caught by the new rules. Importantly, organisations outside the EU, like US-based companies that target consumers in the EU, monitor EU citizens or offer goods or services to EU consumers (even if for free), will also have to comply.

The GDPR also applies to “controllers” and “processors”. What this means, in summary, is that those currently subject to EU data protection laws will almost certainly be subject to the GDPR and processors (traditionally not subject) will also have significantly more legal liability under the GDPR than was the case under the prior Directive.

What can businesses do to prepare?

To ensure compliance, companies need to ensure that they have robust policies, procedures and processes in place. With the risk of heavy fines under the GDPR, not to mention the reputational damage and potential loss of consumer confidence caused by non-compliance, nothing should be left to chance. In terms of key first steps, companies might consider prioritising the following as a minimum:

As May 2018 draws inexorably closer, companies need to start thinking about compliance before it is too late to avoid being made an example of. As the old adage goes: those who fail to prepare, prepare to fail.

New rules to help prevent tax avoidance via non-EU countries were agreed at the recent meeting of the Economic and Financial Affairs Council. The Commission welcomes this agreement which will prohibit multinational companies from escaping corporate tax by exploiting differences between the tax systems of member states and those of non-EU countries (so-called 'hybrid mismatches').

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said: "Today is yet another success story in our campaign for fairer taxation. Step by step, we are eliminating the channels used by certain companies to escape taxation. I congratulate the member states for agreeing on this tangible measure to clamp down on tax abuse and install a fairer tax environment in the EU."

The new provisions build on the Anti-Tax Avoidance Directive (ATAD) agreed last July, which sets out EU-wide anti-abuse measures against tax avoidance. Hybrid mismatches occur when countries have different rules for the tax treatment of certain income or entities, which multinational companies can abuse to avoid being taxed in either country. The agreement reached today (ATAD 2) will ensure that hybrid mismatches of all types cannot be used to avoid tax in the EU, even where the arrangements involve third countries. Today's agreement comes less than four months after the Commission put forward its proposal.

The new rules will come into force on January 1st 2020, with a longer phasing-in period of 2022 for one article (Art. 9a).

The binding measures agreed today build on the extensive work done over the past two years to tackle corporate tax avoidance and ensure fair and effective taxation in the EU.

Major initiatives put forward by the Juncker Commission to boost tax transparency and reform corporate taxation are already reaping results. Member states agreed on the ambitious Anti-Tax Avoidance Directive last July, ensuring that anti-abuse measures will apply throughout the EU from 2019. Member states also agreed – in record time – Commission proposals to increase transparency on tax rulings and on multinationals' tax related information. The proposal for public Country-by-Country Reporting by large companies is being negotiated by Council and the European Parliament, as is a proposal to strengthen the Anti-Money Laundering Directive.

A number of other substantial corporate tax reforms have also been proposed, notably the re-launch of the Common Consolidated Corporate Tax Base (CCCTB) in October 2016. Member states are also working on a common EU list of third country tax jurisdictions that do not conform to international tax good governance standards. The list should be ready by the end of the year.

(Source: EU Commission)

With the impending prospect of Article 50, how should the savvy prepare? Here Finance Monthly benefits from an expert answer, authored by István Bodó, Amaury DeMoor and Karan Lal of REL, a division of The Hackett Group.

The British referendum vote makes a mark in the European Union’s history, as the United Kingdom has taken the decision to leave the EU and will become the first nation to ever leave the union.

Brexit’s impact on remaining EU countries

This slightly unexpected outcome of the vote prompted jubilant celebrations among Eurosceptics around the continent and sent shockwaves throughout the global economy causing a new “Black Friday” across the major European financial markets. Stock exchanges in Germany and France ended down 6.8% and 8% respectively. Since the British, Italian and Spanish stock markets also had losses above 12%, this was the worst drop in a day since the 2007-2008 global financial crisis.

Though financial markets soon recovered, uncertainty remains amongst both the European Union and United Kingdom, as a big question mark lies on the future of their relationship and the synergies that lie within.

From the perspective of the remaining EU countries, the United Kingdom has been a very strong and influential member. The UK is often considered to be the bridge between the EU and the rest of the world due to its historic Commonwealth and political strength around the world. With this relationship now at risk and major decisions in the hands of politicians, this is creating nervousness amongst organisations. Failure to sustain current relationships and trade deals could be damaging for both sides.

Many argue that the EU is a more important trading partner for the UK than the UK is for the EU. However, with the UK’s strong demand for imports from the EU, with special emphasis on the pharmaceutical and manufacturing industry, this is an important factor that needs to be taken into consideration.

In value terms the trade surpluses with the UK are concentrated in a small number of EU countries – Germany, in particular, as the UK is its third most important business partner with 120 billion euros in different goods and services being sold to the UK. Trading with the UK after a formal Brexit may become difficult and more expensive for German and other European companies as new customs and regulations may be implemented. This could have significant impact on the German automobile and engineering industry, considering that every fifth car sold abroad goes to the UK.

Whether the long-term impact of Brexit will cause a shift in European Union business to the rest of the world or will result in a genuine loss in business is unclear for the time being. It is therefore imperative for organisations to be strategically flexible and prepared for either outcome. By capitalising on opportunities to release working capital, organisations can weather economic downturns, as well as fund new opportunities that may be on the horizon.

Importance of working capital and cash

Working capital is the amount of cash that is tied up in a company’s day-to-day operations. It is important that all three components (accounts receivable, accounts payable and inventory) receive focus to realise maximum cash benefit opportunities and identify and tackle inefficiencies in processes and procedures (Fig. 1).

Organisations across Europe have significant opportunities, not just to strengthen their balance sheet but also to move towards world-class working capital performance – in fact, companies could release more than 229 million euros within their receivables, payables and inventories per 1 billion euros of sales.

By highlighting days inventory on-hand and days payables outstanding, median- performing companies have an above 50% improvement opportunity, which can yield and support substantial cost optimisation opportunities, whilst also releasing cash to help fund acquisitions, product development or other investments (Fig. 2).

Another important aspect of shifting from median performer to world class is the higher focus on continuous improvement and sustainable results that becomes part of the company culture, making the whole organisation more effective and efficient. Companies achieving world-class working capital performance are likely to be high performers in other operational areas as well. They are the businesses that not only respond and adapt to changes in competition and customer preferences, but they are also leading the change and capitalising on emerging growth opportunities.

Although the unknown potential impact of Brexit cannot be directly compared to the global financial crisis of 2007-2008, key lessons can be learnt from that period, as poor total working capital management was a key factor in several liquidations. In these situations, cash reserves were not sufficient enough to run operations and whilst at the same time banks were reluctant to increase credit.

How will Brexit shift business?

Britain leaving the union could lead to a shift or loss in business for EU companies. The pound falling to historic low levels against the euro has significantly dented the purchasing power of the United Kingdom. It is for this reason that many UK companies will look to source domestically, as well as outside Europe in an attempt to hedge against the fall in pound sterling.

Although Article 50 has not formally been put into motion and formal negotiations with the EU have not yet begun, the UK already is turning towards her Commonwealth, as Prime Minister Theresa May has already visited India in late 2016. The British prime minister was also the first to formally visit US President Donald Trump in January 2017, as part of the special and historical relationship both nations share with each other. Meanwhile, the EU has also turned its attention to the rest of the world by entering a free trade agreement with Canada in October 2016.

With such sudden political shifts, European-based companies are at potential risk to face a loss of business, as the majority of UK imports currently come from Europe, with Germany, Netherlands and France being the top three exporting countries to the United Kingdom (Fig. 3).

Whether Brexit translates to a shift or loss of business for European-based companies, in either scenario it is imperative for businesses to have a well-managed working capital programme and a well-embedded cash culture that enables smooth adaptation to the new economic environment Europe will face. Achieving a healthy level of total working capital proves to be the less risky option, especially in times of economic uncertainty, and provides companies the ability to stay flexible and resilient against sudden changes. Therefore, initiating total working capital improvement programmes covering accounts receivable, accounts payable and inventory are strongly recommended.

Bracing for industry impact

London is heavily backed to remain the top financial centre in Europe despite exiting the EU. This is largely due to the fact that other European cities such as Frankfurt, Paris and Dublin simply do not have the capacity, resources, culture and educational infrastructure to become a London-like city. With the United Kingdom’s strong political connections to the rest of the world, London also remains the stronger candidate for foreign capital investment.

It is for this reason that the shift in jobs and business is likely to remain minimal for the financial services industry but might be different for core European industries such as manufacturing and pharmaceuticals. With the United Kingdom largely importing from both the manufacturing and pharmaceutical sector (Fig. 4), these industries, in particular, are likely to face either a decrease or loss in business, assuming the risk that the United Kingdom will no longer be part of the single market and the continuous weakening of the pound.

Due to its capital intensive nature and sensibility to economic swings, the working capital requirements of the manufacturing and pharmaceutical industries are generally higher in comparison to industries such as consumer goods and services. This is largely driven by the complexity of the supply chain and the varying working capital performance across sub-sectors, such as plastics, metals, machinery, fabricated products, building products, etc. In addition, the high cost of goods sold directly affects payables and inventories, making working capital performance even more important. To withstand the potential impacts ahead, detailed analysis and assessments must be made in the receivables, payables and inventory areas in order to implement strategies to optimise working capital and use the extra cash to cushion volatility.

Low inflation within eurozone

On the path to recovery from the global financial crisis, interest rates in the eurozone have hit their lowest point in recent history. The decisions made by the European Central Bank (ECB) and backed by ECB president Mario Draghi are largely driven to encourage borrowing across the eurozone, in order to grow and stimulate the economy following the financial crisis. Though the eurozone has by a close margin recovered from the crisis, interest rates have remained low due to inflation targets of 2% not being met.

The currently low price of oil is a major contributing factor to low inflation, as oil is the eurozone’s biggest import; thus, a future increase in oil prices could put the eurozone back at higher inflation rates and increase the likelihood of higher interest rates.

With interest rates currently low and business loans looking attractive, many businesses take the easy route to borrowing money, instead of optimising their working capital. Though many organisations benefit from such a low interest climate in the short run, working capital optimisation proves to be a more sustainable path for the long term, as it shows managerial efficiency, attracts investors and, most importantly, frees up cash. Having the ability to free up cash by improving internal processes always adds value, as it allows organisations to eliminate inefficiencies and remain flexible and dynamic in facing economic uncertainties such as Brexit.

Summary

The unknown impact that Brexit will have on the European Union and the United Kingdom further adds to the uncertainty and nervousness of businesses affected by the move and may lead to delays in investment decisions. Though the UK will hope to retain access to the European Common Market, major European companies will be watching closely as this could have significant impacts on the products they export to the United Kingdom.

The below market commentary was written by Eric W. Noll, Convergex CEO.

MiFID II, an upcoming piece of legislation from European Union regulators, upends the traditional linkage between trading commissions and investment research in ways both the money management and brokerage industries have yet to fully understand. It will force both the explicit pricing of sell-side research and the defense of those expenses to asset owners by money managers. Moreover, while this is an EU directive, we expect many global asset owners to eventually embrace its core principles of explicit pricing and transparency. By virtue of our market leadership in the Commission Sharing Agreement business through Westminster Research, we stand ready to offer solutions and act as a guide to our money management clients as they face these new challenges.

"Half the money I spend on advertising is wasted; the trouble is I don't know which half." That century-old quote from John Wanamaker, one of America's most famous merchants, is as true today as it was in his time. Every business knows they have to advertise to attract new customers and retain old ones, but even in the Internet Age the advertising game remains – at best – an imprecise science.

There is a close analog living on Wall Street: the value of the sell-side equity analyst. Every Director of Research knows that half of their firm's analysts generate most (if not all) of the aggregate profitability of their team. Sometimes that is because the analyst in question has a history of great calls. Other times, it is because they run the best-attended conference in the sector. In still other instances, it is just "right place, right time" - a solid analyst who happens to cover a sector that has gotten hot of late.

On the investment management side of the business, Wanamaker's adage has similar relevancy when it comes to the research these asset managers purchase from those brokerage firms. Half – if not more – of the content a portfolio manager/analyst receives from the Street is perceived to have little-to-no value. Sometimes that perception is based on the principle that it is simply not value-added work, and sometimes that the research addresses a company or sector that is currently out of favor. That is an important difference of course, even if it does not change the 50/50 calculus.

This is all about to change, and the catalyst comes from the European Union with its Markets in Financial Instrument Directive (commonly called MiFID II). Set to take effect on January 3rd 2018, it requires investment managers to rethink how they pay for brokerage firm research. No longer will they be able to bundle commission payments for trading execution and research services. After January 3rd 2018, if they want to purchase brokerage firm research, there are just two options:

  1. Pay for it in cash from the earnings of the money management business itself.
  2. Set up a Research Payment Account (RPA), to be funded either with an explicit fee charged to the investment firm's clients or with commissions explicitly carved out of trading executions. The RPA will need to be structured strictly in accordance with the new regulations as well as require the asset manager to create a research budget for the year ahead, apply appropriate quality assessments to the research being consumed and report research expenditures to its clients on both an ex-ante and ex-poste basis.

That might all sound innocuous enough, but once you think through the ramifications it becomes clear that big changes are afoot. For example:

Take a moment and consider the ramifications of these changes. Here are just a few novel questions and issues they raise:

How does the sell-side develop a service menu to help their clients budget their research spends? Over the decades, brokerage firms have refined a dynamic pricing model that enable them to essentially charge different prices to different customers for the same product, all the while looking to capture every bit of potential revenue.  Now, clients will want to know exactly how much a report or an analyst visit or a conference will cost. It's like going from a family-style buffet restaurant to a dining establishment with a la carte pricing.

While US based asset managers may not necessarily have to comply with MiFID II, it is important to emphasize that we anticipate this directive will ultimately have a global impact as it is now virtually impossible to contain regulation within geographic boundaries. As global managers do business with European asset owners, they may ultimately make a decision to adapt their current procedures to give them the operational capacity to respond to the MiFID II Directives and err on the side of caution.

Now, if you want a playbook for how all this looks, we have it. Our Westminster Research Associates business has been around for 20+ years, helping clients with exactly the sort of challenges they will face with MiFID II. For example:

In summary, MiFID II may be an EU regulation but it will almost certainly change broker-provided investment research around the world. We see that as a positive development because with greater transparency will come more accountability and, ultimately, a more efficient research marketplace. Clients will get more of what they want – truly differentiated research that helps them perform – while tracking what that resource costs and explicitly evaluating its cost and benefits.

Will this be an easy transition? Of course not, but we are focused on making all of the necessary changes to our business model to meet the MiFID II requirements that will enable our clients to respond effectively to the new environment. The quote with which we started this note mentioned that half of all advertising is wasted. It could well be that half of all broker research is unwanted. Only time will tell. But with MiFID II on the horizon, we are on the road to finally determining which half is truly valuable. And that is a journey worth taking, both for brokers and for asset managers.

(Source: Convergex)

The European Investment Fund (EIF) and the British Business Bank (BBB) have signed an agreement under the European Commission's InnovFin initiative to help small and medium-sized enterprises (SMEs) in the UK access an estimated £30 million (ca. EUR 35 million) in additional financing. This transaction benefits from the support of the European Fund for Strategic Investments (EFSI), the heart of the Investment Plan for Europe. So far, the UK has been the second largest country of operation for EFSI backed financing with support going to renewable energy, a new hospital in Birmingham, smart meters and SME lending.

European Commission Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness, said: “Today’s agreement is excellent news for those innovative SMEs who would not otherwise have had the opportunity to obtain the finance they need to grow and create jobs. I am delighted that the Investment Plan is there to support them as they take their next steps.”

The Investment Plan focuses on strengthening European investments to create jobs and growth. It does so by making smarter use of new and existing financial resources, removing obstacles to investment, providing visibility and technical assistance to investment projects.

The InnovFin SME Guarantee Facility is established under Horizon 2020, the EU's programme for research and innovation. It provides guarantees and counter-guarantees on debt financing of between EUR 25,000 and EUR 7.5 million in order to improve access to loan finance for innovative small and medium-sized enterprises and small mid-caps (up to 499 employees). The facility is managed by EIF, and is rolled out through financial intermediaries – banks and other financial institutions – in EU member states and associated countries. Under this facility, financial intermediaries are guaranteed by the EU and EIF against a proportion of their losses incurred on the debt financing covered under the facility.

The UK is regularly among the top beneficiaries of EU innovation grant funding, including in the latest rounds of the European Research Council's (ERC) proof of concept grants which support researchers in bringing their ideas to market and Horizon 2020's Fast Track to Innovation (FTI) scheme which does the same for SMEs. Historically, it has been the biggest recipient by far of the FTI scheme since it was launched in January 2015.

(Source: European Commission)

The UK is set to be one of biggest winners from the EU-Canada CETA free trade deal. With 10,570 companies already exporting a wide variety of goods from baby wipes to aircraft parts to Canada and supporting over 240,000 jobs, the UK economy is in the best position to benefit from the removal of import duties, lifting of barriers and potential trade growth, according to data from a new web tool on CETA published by the European Commission.

And it is not only big business that is taking advantage of the free transatlantic trade as 79% of the EU exporters to Canada are small and medium-sized enterprises.

In exports to the second biggest North American economy, the UK is ahead of both Germany and France which have 10,464 and 9,732 companies respectively selling goods and services to Canada and significantly fewer jobs benefitting from that trade – 141,000 for Germany and 77,000 for France. Whilst there are more Italian companies (13,147) trading with Canada, they only employ about 63,000 people in total.

"CETA in your town", the new interactive map and tool developed by the European Commission, gives a snapshot of EU-Canada trade relations by drawing on a subset of the many companies in cities and towns all over the EU that export to Canada, with examples of products they export.

The trade with Canada is spread fairly evenly across the UK and across business sectors, the map shows. The leading Welsh town for exports to Canada, for example, is Swansea with three companies exporting foam masking tape, ores, slag and ash, bottle closures. Belfast has six companies selling carpets, pharmaceuticals and animal feed to Canada. Glasgow's exports include steel fittings, theatrical goods and alcoholic beverages supplied by some 10 companies with a further ten businesses in Bristol selling a range of items such as aircraft parts, cereals and baby wipes.

The Comprehensive Trade and Economic Agreement (CETA) between the EU and Canada is expected to save exporters over £425 million (€500 million) a year in import duties. It was signed by the President of the European Commission Jean-Claude Juncker, the President of the European Council Donald Tusk, the Prime Minister of Slovakia Robert Fico, and the Canadian Prime Minister Justin Trudeau on 30 October 2016, but the deal still has to go through two main stages of democratic oversight. First, the European Parliament must give its consent to CETA for it to apply provisionally. The second stage involves parliaments in EU countries and only once they approve the agreement will CETA come fully into force.

(Source: EU Commission)

The EU-Romania Business Society welcomes the firm stance taken by Brussels opposing the Romanian government's emergency decree reducing penalties for corruption. The European Commission President Jean-Claude Juncker and the First Vice-President Frans Timmermans stated: "The fight against corruption needs to be advanced, not undone. We are following the latest developments in Romania with great concern."

The statement today from President Juncker and First Vice-President Timmermans went on to say: "The Commission warns against backtracking and will look thoroughly at the emergency ordinance on the Criminal Code and the Law on Pardons in this light. The irreversibility of the progress achieved in the fight against corruption is essential for the Commission to assess whether at some point monitoring under the Cooperation and Verification Mechanism (CVM) could be phased out."

The EU-Romania Business Society welcomes the robust position taken by the European Commission. Romania's enormous potential can only be fulfilled under circumstances where the rule of law is clear and fully respected.

Speaking in Brussels after the Commission's statement, Mr James Wilson, founder and director of the EU-Romania Business Society said: "Just these past days we have seen negative business reports about Romania from Transparency International and the Commission's anti-corruption monitoring group about continued failings in Bucharest in 2016 to strengthen rules and laws protecting business capital and property rights. It sends entirely the wrong message for the Government to propose legislation that would exacerbate the situation."

"Our particular interest is to promote a positive investment climate for businesses, where much-needed foreign investors can have faith that the rule of law will be respected in Romania. 2016 saw a low point in relations between the Government and international businesses. We remain optimistic that the new Government can use their mandate to improve conditions for foreign capital."

(Source: EU-Romania Business Society)

Last week the news was flush with panic that following Theresa May’s infamous Brexit speech, the UK will soon be leaving the EU’s single market, meaning the end of tariff free trade throughout the European continent, as has been for the last few decades.

According to the BBC, Theresa May stated that the UK “cannot possibly” remain within the European single market, as that would mean “not leaving the EU at all.” But does that truly mean the end of free trade with European nations, or is the meaning of this misconstrued amongst opinion?

Finance Monthly has therefore reached out to a number of experts, and in this week’s Your Thoughts feature, asked their opinion on this matter, how it may affect the public, what kind of deal could be made, and what it would mean for the future of the UK’s economy.

Anand Selvarajan, Regional Leader for Europe, RSM International:

The UK government’s decision to take single market access off the negotiating table is only the beginning of the debate for businesses with ambitions to work across Europe.

Ahead of any other concern, the number one priority for European businesses who work in the UK, is continued market access*. Whether this is through the common market as we know it, a customs union or something entirely new, businesses on both sides want to reach a practical trade deal between the UK and Europe.

A complex relationship between the UK and Europe on tax, trade or regulation will only stifle British and European businesses and threaten economic growth. If the UK chooses to erect a wall of bureaucracy between itself and Europe, everybody will share the cost.

Simon Evenett, Professor of International Trade, University of St. Gallen:

Facing the reality of exit from the Single Market, the UK wants a bold trade deal with the rest of the EU. Why should Brussels agree to negotiate a trade deal in parallel to divorce talks? Self-interest is Whitehall's first answer--but if the EU were really interested in getting the most from foreign markets it would have reformed itself years ago. Talk of avoiding a cliff edge just creates a massive game of chicken as the deadline for talks approaches in 2019. Economic threats won't scare Brussels.

The second carrot Mrs May dangled is security collaboration. But would the UK really deny critical information to a European neighbour about an impending terrorist attack if no trade deal emerged? Hardly. Before tough talks about substance begin, what price is the UK prepared to pay to get the negotiating agenda it wants? Be prepared for a harsh tutorial in the realities of trade talks.

Joan Hoey, Europe Analyst, Economist Intelligence Unit:

In a trenchant rejoinder to her critics, who have accused her of vacillation and indecision, the prime minister set out a very clear set of priorities for her government as it prepares to negotiate the UK's departure from the EU. Taking control of the narrative on Brexit, Mrs May spelled out four principles that would guide the government in the negotiations and 12 objectives that it would seek to achieve.

Most importantly, she made clear that the UK will leave the single market, as the referendum result implied all along. Mrs May's red lines on immigration and ending the jurisdiction of the European Court of Justice mean that the UK must, and will, leave the single market. Less clear is the future shape of the UK's trading relations with the EU: this is inevitable. It is impossible for the government to eradicate uncertainty about Brexit because the final shape of the UK's trading relations with the EU will be the subject of negotiation.

Mrs May stated she would like the UK to have tariff-free access to EU markets, but full customs union would prevent the UK from negotiating trade deals with others. This makes it likely that the UK will also have to leave the customs union, but may negotiate some kind of partial or associate agreement. If the UK leaves the customs union, the issue will be whether to negotiate a free-trade agreement (FTA) and, if so, how comprehensive would it be. Whatever arrangement is finally agreed, UK-EU trade ties are likely to remain intertwined.

The prime minister adopted a determinedly upbeat tone towards the EU, insisting that the UK wants to remain on the best possible terms with its continental neighbours after it leaves the union. In our view, the chances of a wholly amicable divorce from the EU are slim, but a completely hostile one could be avoided, as both sides also have an incentive to stay on good terms given the economic, political and security challenges facing the entire region in coming years.

The prime minister emphasised the upside of Brexit—not only in the sense that it opens up new global trading opportunities, but also because in the cause of improving competitiveness it will force policymakers to address some of the UK's structural deficiencies, in particular poor productivity growth, insufficient innovation and poor infrastructure. If the UK ends up leaving both the single market and the customs union, as now seems very likely, it would be forced to address these issues more urgently.

Alan Shipman, Lecturer in Economics, The Open University:

In her 17th January speech, the prime minister pledged to abandon the UK’s European single market membership and negotiate for “the greatest possible access to it.” She rightly recognised this as the only way the UK can escape its present obligations of allowing free inward movement from the EU, transposing EU directives and “complying with the EU’s rules and regulations.

This is a heavy economic price to pay for the right to limit immigration from the EU, given that the UK has historically benefited economically from free flow of labour (inward during the long boom of 1994-2007, outward during earlier downturns). It is hard to show that recent EU immigration has done economic damage, even to lowest-paid households.

Although the prime minister couldn’t quite admit it (perhaps because of earlier pledges to Nissan) it will be near-impossible to leave the single market and deliver the promised bilateral trade deals without also leaving the EU customs union. So even if post-Brexit tariffs on UK imports and exports remain low, there could be a cumulative cost penalty for UK-based firms that have extended supply chains across the EU. Former trade partners will be still keener to re-impose non-tariff barriers (NTBs) on the many UK products they could substitute with their own. NTB removal was central to the Thatcher-inspired single market programme, whose payoffs are still rising in the service sectors most important to the UK.

Many were induced to vote for Brexit by politicians’ blaming the EU and immigration for hardships that owed more to their own policy choices. It is equally misleading to sell ‘hard’ Brexit by portraying the EU as a 44-year shackle on UK enterprise and political initiative. As an EU member, the UK closed its longstanding productivity gap, improving living standards and the environment, before its under-regulated financial sector crashed in 2008. Dropping labour and consumer protections and redistributive taxes, to redirect trade towards lower-cost countries, is not what most Brexiters voted for.

Alicia Kearns, Director, Global Influence:

There is a vision and we will be leaving. Membership of the single market holds these four pillars inviolable: free movement of goods, services, capital and people. The restriction on unfettered free movement of people was a key, but not sole, force behind the Leave vote and the Government was never likely to retain this since it would result in a Brexit outcome that pleased no-one.

This leads to the question of where the UK will find itself, a Customs Union looks increasingly unlikely since it prevents the formation of bilateral trade deals. Additionally, the Customs Union and indeed the Single Market represent a protectionist bloc, run ostensibly for the ‘greater good’ of its participants. But this only serves to redistribute wealth from consumers to corporates, vocal interest groups with strong lobbying influence. When this serves to limit trade with the rest of the world, and the benefits that come with it – one must wonder who are the primary beneficiaries of these controls in an organisation otherwise so enamoured with a frictionless economy. Theresa May’s play is to arrange trade deals with the rest of the world, aligned to what we as a country feel is absolutely crucial – in the hope this will offset any detriment caused by the protectionist and administrative hurdle faced by British trade with the Single Market.

Whilst time will tell how successful this move is, the challenge is to communicate this effectively. We need a vision narrative for Brexit. An individual narrative for allies old and new. What we can offer, and what they will gain; bespoke to each audience. We cannot rely on standalone speeches at pre-ordained times, we need an ongoing conversation with the British people and partners abroad. At home we must set our flag in the sand and rally to it; the narrative challenge will remain protecting our national interests first whilst keeping the UK public on side – and that means the Prime Minister not revealing her hand as no poker player would. Because let’s be clear, diplomacy is the ultimate poker game of self-preservation and influence. But that does not call for timidity, quite the opposite – as businesses, communities and individuals we each have a responsibility to hold ourselves accountable for the success of Brexit. We must step up to the mark and play our role in creating an even greater Britain. The Prime Minister has rallied the country; unity with integrity. Now it is our responsibility to stand by her.

Ismail Erturk, Senior Lecturer in Banking, Alliance Manchester Business School:

Leaving the single market in the short-term is very likely to increase costs in British businesses, which may wipe out any benefits from sterling’s depreciation. Over the medium- to long-term, if the trade negotiations after leaving the single market do not go smoothly, uncertainty is likely to reduce capital expenditure, hurting growth and employment in the UK. Increased costs in the shorter-term will involve spending money to navigate the new red tape in trading internationally outside the single market.

Some emerging economies are notoriously costly to do business with, as the legal structures and business cultures are very different from the EU. With currency, inflation and trade risks to manage, we’ll likely see an increase in the cost of hedging or remaining unhedged against such risks. For importers, these are likely to be passed on to the consumer prices in the UK, while profit margins for exporters will be reduced. Plus, businesses will also need to add in increased sales and marketing costs to remain competitive outside the single market framework and to find alternative markets – there are many obstacles which are likely to hurt profit margins.

Over the medium-term there will be real uncertainty due to trade negotiations outside the single market, which is very likely to reduce capital expenditure. If this reduction happens, it’s likely to hurt economic growth and employment in the UK. Since the 2008 financial crisis, productivity in the UK has deteriorated and this will have had an impact on the UK businesses’ competitiveness in international markets outside the single market.

All these short-term and medium-term risks necessitate financial support from the UK banks, but the banks have not fully recovered from the effects of the 2008 crisis – look at RBS, which is still in bad shape. Therefore, businesses are not likely to get the financial support to expansion and capital expenditure from the UK banks over the medium-term, hurting their competitiveness internationally.  Of course, there will be opportunities too for newcomers in the UK to develop business models outside the single market, and for existing businesses there will be opportunities to enter into joint ventures and other forms of business collaborations without the restrictions of the single market regulations.  However, the costs mentioned above, I believe, are likely to be much higher than the benefits of the opportunities.

Philippe Gelis, CEO and Co-Founder, Kantox:

We saw the pound surge as Theresa May outlined her plan to leave the EU. Whilst the decision to have a clear break with the EU, and subsequently lose single-market access, may not have been received positively by some, there is now at least, a clearer plan set out.

The impressive advance on the pound could have been exaggerated also by the current dollar weakness. However, what’s more important is how sterling performs moving forward. The plan by May is by no means concrete, and there is still a great deal of uncertainty regarding the economic impact of the UK’s exit – it’s likely that such uncertainty will keep investors away from the pound until the outcome of Brexit begins to materialise.

Only when negotiations develop in the second half of the year, (assuming everything goes smoothly), will we see a sustained recovery of the pound. Until this time, it’s likely that we’ll see the pound drop in value, with some experts predicting that this could reach parity with the euro. Yet, while we can predict an overall decline, there will be shifts and turns along the way, meaning the nature of the downward trend will not continue in a straight line. Businesses exposed to sterling should be ready to react in whatever way the currency moves. In moments of turbulence, it is vital for companies to safeguard their margins as best they can.

To do so, businesses should be looking at FX solutions that offer the ability to cover entire currency risk in an effective and timely manner – currencies cannot be treated in silo, but rather as a whole. It will also be important to analyse currency needs and exposure so that no matter the performance of sterling, or how complicated your FX needs might be, a comprehensive plan is in place to protect margins based on real numbers.

Lastly, businesses should look to simplify currency management – the pound is not the only currency that has the potential of shifting unexpectedly. This is why using an FX management tool that allows to efficiently handle multiple currencies will ensure that no sudden swings take the business off guard.

Catherine Hendrick and Adam Borowski, Synechron Business Consulting:

Volatility has been the only recognisable trend in Financial Markets since the shock Brexit outcome of the EU referendum. And whilst the UK Government has moved to ease the uncertainty amongst investors, it has at the same time dashed any hopes that a Brexit deal would maintain the UK’s membership to the Single Market. Or has it?

The UK’s Financial Services sector is envied across the world. It’s long-established financial infrastructure and legislative framework has provided the foundation for Banks and Corporates to thrive. Globalisation strengthened London’s position has a global financial hub through its unique competitive advantage of being located in a time zone convenient for business with both the US and Asian markets. This position was bolstered with the creation of the European Single Market and Passporting Regime, which shaped London as the golden gateway into Europe for Financial Services – it was simply the cherry on top.

The fundamental principle of the Passporting Regime is to minimise the regulatory, operational and legal burden on firms offering cross-border services within the Single Market. It creates the freedom for firms established in member states to provide and receive services. What makes it so lucrative is its openness, particularly to international firms – its why many American Banks choose London as a gateway for business in Europe. So why would the UK Government appear to disregard these benefits and leave the Single Market?

Game Theorists could classify the situation between the UK and the EU as a cooperative game, where the aim is to promote a joint agenda and work towards the same purpose. However, a mutually beneficial outcome, such as a free trade agreement can be a complicated outcome to achieve due to conflicting priorities. The UK wants to reclaim its sovereign power over immigration and its judicial system, whilst the EU wants to adhere to the freedom of movement principle whilst at the same time, deterring potential leavers.

The type of deal that will be achieved largely depends on who has the bargaining power. By default, this lies with the EU as the UK will lose out on 27 export markets whereas the EU will lose just one. Theresa May’s 12 Point Plan for Brexit was her first move in the game. It was an attempt to strengthen the UK’s bargaining power in order to maximise the UK’s interests during negotiations. On the surface it may appear that the UK has turned its back on the Single Market and is headed for a ‘Hard’ Brexit, in reality Theresa May’s stance may be the only way to achieve the best of both worlds; sovereignty and prosperity.

We would also love to hear Your Thoughts on this, so feel free to comment below and tell us what you think!

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