Mid-market businesses are bracing themselves for the impact of Brexit and looking beyond Europe to shore up their future success, according to research from Mills & Reeve.
The study, Defying Gravity - based on the opinions of 500 leaders of medium-sized businesses – reveals that mid-market businesses remain confident in their growth prospects despite feeling the fallout of the vote already, and are overhauling their strategies in preparation for Britain’s EU exit.
Over 60% of mid-market business leaders plan to increase investment in exports beyond the EU in response to Brexit.
The research reveals that mid-market businesses are feeling bullish despite the unstable landscape, with 83% planning to increase turnover this financial year (2017/2018) by an average of 22%.
However, mid-market businesses are facing some serious challenges, and many are already feeling the repercussions of the Brexit vote. More than half of businesses report falling demand, and over half have experienced increased issues with late payment following the referendum result in 2016.
But the more substantial hurdles still lie ahead. With 60% of mid-market leaders saying that single market access is ‘critical’, leaders believe that failing to reach a deal with the EU would cause significant damage to their business.
And whatever the outcome, businesses are preparing for tough times ahead: 61% expect the administrative burden of regulatory or legislative change to cost their business significant time and money. There are also fears of increased talent shortages once Britain leaves the EU. Sixty seven percent of technology company leaders believe that the UK’s departure from the EU poses a serious threat to recruitment and retention of specialists.
Claire Clarke, managing partner at Mills & Reeve, comments: “Although Britain has not yet made its exit from the EU, mid-market businesses have been feeling the effects of Brexit since the referendum results were announced. But our research shows that business leaders are finding ways to meet the challenge and actively adjusting their strategies to deal with the fallout.
“Despite current uncertainties surrounding Brexit, it’s encouraging to see leaders remaining buoyant and setting their sights high for the future. This confident but flexible approach will help mid-market businesses keep their position as the driving force of the British economy.”
Tom Pickthorn, Head of International at Mills & Reeve, adds: “The fact that so many mid-market businesses are keen to increase their investments in exports beyond the EU in response to Brexit is very encouraging. Future economic growth will be driven by emerging market economies rather than European countries, so businesses that are willing to look further afield can expect to be rewarded for their efforts.
“Although Brexit is presenting challenges, it may also be prompting an important expansion of horizons. This is good news for the mid-market, and good news for the UK as a whole.”
(Source: Mills & Reeve)
UK businesses optimistic about international trade plans – and view trade as a catalyst for growth, says new report from American Express.
The UK remains a uniquely connected major economy, and the future looks bright for the country’s trade activity; 39% of UK businesses presently trading internationally plan to increase their volume of trade over the next 12 months, and almost half (44%) expect their revenue from trade to increase within this period.
American Express commissioned the Centre for Economics and Business Research (Cebr) in October this year to undertake the Fresh Frontiers study to understand more about the dynamics of international trade opportunities across six major trading markets.
Based on economic modelling, the report reveals that the USA is the top untapped trading partner for the UK. In addition, continental European markets also feature strongly in terms of untapped trade potential, with Luxembourg, Denmark, France, Finland and Austria all ranking highly. This suggests the UK businesses should look to continental Europe and the US for future trade growth.
As part of the Fresh Frontiers study, American Express also separately surveyed businesses in each country about their international trade outlook. The majority (77%) believe that opportunities for international trade are increasing and half are looking to trade with new countries over the next 12 months.
Reassuringly, the research also shows that the present economic turbulence isn’t deterring UK businesses when it comes to their trade ambitions: The vast majority (80%) of UK businesses trading internationally are confident in their global trade strategies, with bigger businesses (with 250+ employees) 11% more likely to be confident than SMEs. However, it seems that they are taking a cautious approach to their trade plans, with almost half (49%) describing their approach to international trade as ‘measured’ and 21% saying they are ‘risk averse’.
Despite the opportunities offered by international trade, businesses admit that they face significant obstacles when looking to trade. 75% of UK businesses surveyed believe that international trade is becoming increasingly complex, citing exchange rate volatility and economic changes as the biggest challenges to both their current and future international trade activity. UK businesses also revealed that making and receiving payments abroad was overly problematic (71%). However, less than half (42%) currently use FX forward contracts and only 28% use FX Options, despite the vast majority of those that do deeming them effective (87%).
Jose Carvalho, Senior Vice President at American Express Global Commercial Payments, comments: “It’s very positive to see UK businesses looking to international trade as a way to grow and undeterred by either geography or logistics. As well as looking to new countries to trade with, businesses are actively seeking solutions such as FX forward contracts to overcome perceived barriers. Technology has been a great catalyst in enabling this to happen.”
Cristian Niculescu-Marcu, Managing Economist at CEBR, says: “Taking into account key trade drivers, such as economic performance, regional trade agreements, low levels of corruption and institutions, the Fresh Frontiers analysis shows significant untapped trade potential for UK businesses both in the USA and closer to home.”
With 91% of UK businesses agreeing that digital technology makes it easier to trade internationally and 73% agreeing that they expect to see business growth through international rather than domestic trade over the next year, there has perhaps never been a better time to assess new trade potential around the globe.
(Source: American Express)
With recent news that the pound took a tumble over the weekend, partly attributed to the future of Theresa May as Prime Minister and the upcoming EU summit, rumours that China is looking to open its finance sector up to more foreign ownership, and updates on the latest trade announcement being teased by US President Trump after he pretty much told Japan they ‘will be the no.2 economy’ here are some comments from expert sources on trade worldwide.
Rebecca O’Keefe, Head of Investing at interactive investor, told Finance Monthly: “European markets have opened relatively flat, with the FTSE 100 the main beneficiary after sterling’s latest fall, as pressure mounts on Theresa May who is struggling to maintain her grip on power. The gravity defying US market has been the driving force behind surging global markets, so investors will be hoping that the Republicans can get their act together and deliver key US tax reform to help support the path of growth.
In sharp contrast to Persimmon’s lacklustre results and a gloomy report from the RICS last week, Taylor Wimpey’s trading update is much stronger and paints a relatively rosy picture of the current housing market. Confirmation of favourable market conditions and high demand for new houses is good, although there are early warning signs that the situation might deteriorate, with slowing sales rates and a drop in its order book. Share prices have already come off recent highs, amid fears that the sector had got ahead of itself and investors will be hoping for more help from the Chancellor in next week’s budget to try and provide a new catalyst for the sector.
Gambling companies have been making out like one armed bandits since the summer, as expectations grow that the Government will compromise on a much higher figure for fixed odds betting terminals than the £2 maximum suggested during this year’s election campaign. However, while betting shops are the focus of attention for politicians, the real action can be found on smartphones and elsewhere – with surging revenues and profits being driven from online betting. Companies who have got their online strategy right are the significant winners and although Ladbrokes Coral has seen a 12% jump in digital revenues, the comparison against online competitors such as bet365 and Sky Bet, who both reported huge revenue growth last week, has left the market slightly disappointed and sent the share price lower.”
Mihir Kapadia, CEO and Founder of Sun Global Investments, had this to say: “The last couple of days have seen two of the big global economies China and Germany report large trade surpluses underlining their robust performance over the year. In contrast, the UK economy has been on a downbeat weakening trend as Brexit and political uncertainties lead to declining economic confidence and slower growth.
Data released last month showed August’s trade deficit at £5.6 billion, and in comparison, today’s data of £3.45 billion for September has been a better than expected improvement, but nevertheless indicative of an additive gap that appears unlikely to be closed anytime soon.
While Brexit uncertainty has weakened the pound against its major peers, it had helped boost exports but in turn has also made imports more expensive. This is the short term “J Curve” effect which is often seen after a devaluation. Over the long term, the weaker pound is perhaps likely to help the trade deficit as exports rise (due to the lower pound and higher growth in the global economy) while import growth slows down due to the slowdown in the UK.”
Welcome to Finance Monthly's countdown of the Top 10 Greatest Trades that the trading floor has ever seen. We take a look at each trader, the audacious move they pulled off and where they are now.
Scroll through to see who tops our list.
10. The 1929 Short - Jesse Livermore
Result: $100 million profit
Livermore can be classed as one of the world’s pioneers in terms of shorting the market.
His first attempt was shorting the market by selling Union Pacific just before the San Francisco Earthquake of 1906. The pay-out was £250,000 but that was only the beginning. He followed that up by shorting the market again in 1907. As the stock market crashed Livermore took home $1 million for his efforts. Always looking for the next target, he concentrated on the wheat industry in 1925, with another successful short that earned him $3million.
Livermore was gaining a significant reputation but his real coup de grace would make his earlier trades pale in comparison. In the early autumn of 1929 the Dow Jones is up five-fold in the last 5 years and the euphoric atmosphere that pervaded the entire floor wasn’t shared by Livermore. As the money flowed in reaching an $8.5 billion high, it got to the point where the outstanding loans had exceeded the current amount of money in circulation. In September, as the stocks began to level out, Livermore gambled on his biggest short, which took place on that fateful day in 1929. Looking for a bigger haul and seeing what was coming, Livermore shorted the entire market. As the US Financial sector went into meltdown, Livermore earned himself $100million which in today’s market would equate to a $1.4 billion-dollar haul.
Incredibly, Livermore was declared bankrupt and was banned from the Chicago Board of Trade in 1934, just five years after his greatest success as an investor. No one knows exactly why and indeed how he lost all his money, but his reputation as one of the best ‘shorters’ still stands to this day.
Next: Shorting Black Monday
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Following Monarch Airlines’ recent closure 110,000 passengers were left overseas according to reports. The overall cost of returning these passengers was reported last week at £60 million. In addition, nearly 1,900 jobs were lost as a consequence of Monarch ceasing trade, and the collapse of this 50-year-old airline is the largest ever for a UK airline.
So why did Monarch drop to administration? Terror attacks in Tunisia and Egypt, increased competition and the weak pound have all been reasons pinned to the airline’s demise.
This week Finance Monthly asked experts in the aviation industry and market analysts about their thoughts on the reasons behind the collapse, and the overall impact this ruin will have on markets, customers, travel and other airlines.
Mike Smith, Company Debt:
The collapse of Monarch airlines to someone born in the fifties will be a sad day as it was a very popular carrier in the 70’s and 80’s. If you went to Lanzarote you probably used Monarch at some point. With the advance of low cost airlines, the pressure was always on and with paper thin profit margins any business error is punished severely.
As far as customers are concerned if they booked the holiday themselves and paid by credit card they will be covered under section 75 of the Consumer Credit Act. In effect the ‘card’ company is as liable as Monarch provided the flight cost more than £100. If a holiday was booked online through an ATOL registered travel agent they will be protected there too. Typically, you are covered for flight, car hire and hotel accommodation.
So, in the main the bulk of travellers will be compensated. A question I would pose is, what does it say about us as a society when a company such as Ryan Air apparently thrives, whilst Monarch bites the dust. I’m sure there are some who will say that it was a failing airline and an ‘accident waiting to happen’ and there is some truth in that. Personally, I will be sad to say it disappear from the radar.
Richard Morris, Partner, Whistlejacket:
£60 million for 110,000 rescue flights is a considerable sum of money, and it raises a few questions. At an average cost of £550 per repatriation flight, they are budgeting for an awful lot of complimentary peanuts. I’d guess a lot of free champagne will be served in the boardrooms of the other airlines who have been asked to step into the breach and bring everyone home.
However, there’s a great brand opportunity here for all the ‘rescue’ airlines. A grand gesture at this point, reducing some or even all of the cost, would buy them a lot of brownie points, with passengers, government and the wider tax paying public, and it won’t cost them anything like £60m to do it.
Before the Government (or the airlines) start shelling out, the insurance companies and credit card companies will be asked to bear much of the cost. Plus, that £60m is the gross cost to the government, therefore net costs to airlines will presumably be considerably cheaper.
Social content opportunities will abound as the ‘rescue flights’ bring folk home and grateful passengers give their thanks. It’s hardly airlifting people from a war zone, but being trapped abroad with no ticket home is still an unsettling experience. My guess is, passengers will be putting their names up in lights as a result.
It will take speed, creative thinking and agility, but making a big gesture now on the costs of this operation will pay dividends to the brands that offer to underwrite the rescue. In a UK airline industry beset by British Airways IT crashes and strikes, Ryanair flight cancellations and now Monarch falling into receivership, there’s a gaping good news void begging for a right-thinking brand to fill it.
Quick someone. Put your hand up first.
Alex Avery, MD, Pragma’s Airports, Travel and Commercial Spaces:
Causes for Monarch’s collapse
Looking at the causes of Monarch’s collapse, there’s a few factors going, not least a change in the markets it serves. The political instability in many of its key markets, such as Egypt and Tunisia, has mean it had to scale back flights to these destinations and compete more directly with short-haul European carriers, which is a very competitive market.
The exchange rate is another factor that’s impacted airlines. For Monarch, the majority of revenue is generated in pounds whilst the cost of fuel and aircraft leasing is paid out in dollars. The pound depreciating has impacted Monarch substantially.
Given the pressures in the market, it’s possible other airlines will follow Monarch’s collapse. This means we’ll be left with a few of the large legacy players, like BA and Lufthansa - who are subsidised by long-haul – and the dominant low-cost leaders, dominating what is a more and more challenging market to operate in.
Impact on market
There’s a lot of movement in low-cost at the moment - mergers and a move towards strategic partnerships. Traditional low-cost players like Norwegian, are growing very fast adding long-haul and transatlantic into the mix, and developing partnerships with other low-cost carriers. The easyJet and West Jet venture has proved successful, enabling travellers to buy a single ticket that connects a partner carrier to their long-haul flight. Low-cost players are now breaking into the hub and spoke model which has previously been the domain of the bigger players.
How businesses can manage this
Airlines have had to contend with the decline in consumer loyalty; as the division between traditional players and new entrants closes, so the polarisation of customers has narrowed. With less distinction between propositions, it’s trickier to retain customers, who in turn opt for convenience and cost and are pretty much agnostic to airlines. The onus is now on carriers to build loyalty through enhanced propositions, and expanding revenue growth through add-ons, such as car parking and hotel and transport bookings.
It’s understandable that the fall-out of the Monarch crisis will have made some businesses jittery about how their people travel. We’d expect to see a short-term uptick in legacy carriers, as companies opt for trusted, dependable options. We have short memories, though, and pretty quickly, cost will drive people back to low-cost.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Interactive Investor, the online investment platform, has recently released its clients’ most traded investments, by number of trades, in September 2017.
Commenting on the results, Lee Wild, Head of Equity Strategy at Interactive Investor, said: “It was all about inflation, interest rates and tapering during September, so little wonder central banks dominated proceedings. US Federal Reserve chair Janet Yellen, who’ll begin slowly winding down the Fed’s $4.5 trillion balance sheet this month, prepped markets for a rate hike in December then another three in 2018. Not to be left out, Bank of England governor Mark Carney turned hawk as inflation hit 2.9%, confirming that a first increase in UK borrowing costs for over a decade just got a whole lot closer.
“The obvious benefits of higher interest rates had the British pound up as much as 5% against the dollar and at a post-EU referendum high. Rate rises are typically good news for the banking sector, with lenders quicker to raise borrowing costs than they are to offer better deals to savers. It may not be great for consumers, but an improvement in bank margins should feed through to shareholders by way of bigger profits and dividends.
“It’s why investors’ favourite Lloyds Banking Group rallied 6% in September and remained the most popular blue-chip stock on the Interactive Investor platform last month. Vodafone blasted back into the Top Five. Apple’s launch of the iPhone 8 should get the tills ringing, and the fastest growing broadband operator in Europe offers an irresistible dividend yield of over 6%.
“As one would expect, there was plenty of excitement on AIM. Online fashion retailer Boohoo.com is a member of AIM’s exclusive ten-bagger club, but the shares are hardly cheap, so tweaking margin guidance lower in its half-year results gave traders a scare. So did joint-CEO Carol Kane’s decision to sell £10.7 million of Boohoo shares in the aftermath.
“However, a 25% plunge in the share price always looked harsh given aggressive growth forecasts. It’s why trading volume more than tripled in September and buyers outnumbered sellers two-to-one.
More spectacular, however, was the explosion in activity at Frontera Resources. There are 13.4 billion shares in issue worth less than a penny each, but the £100 million company is no tiddler. Frontera’s liquidity, typified by tight spreads, volatility and an intriguing story make it a firm favourite among small-cap investors. At the beginning of September, the shares were worth just 0.1125p, but before the month was out it was 0.782p, an increase of 595%.
“There’s real excitement around Frontera’s Ud-2 well in Georgia because it sits in the Mtsare Khevi gas complex, where experts estimate a potential recoverable resource of 5.8 trillion cubic feet of gas. Following a series of progress reports, the number of trades on the Interactive Investor platform swelled twelvefold in September versus the previous month.”
Rebecca O’Keeffe, Head of Investment at Interactive Investor, adds: “Yet again, the big active funds of Fundsmith Equity, Woodford Income and Lindsell Train Global occupy the top three spots, with our investors continuing to prefer active management in the current environment. With currencies driving markets and sector moves more pronounced, there is greater potential for active managers to add value.
“Although the top three are all active, passive funds remain relatively popular and Vanguard 100 muscled its way back into the Top Five, knocking out Jupiter India in the process. Vanguard have taken over as the preferred option for many clients, with 15 Vanguard funds in the Top 100 most bought funds year-to-date. The compound effect of lower fees is significant and over the long term this can add tens of thousands to your portfolio value, making low-cost tracker funds highly attractive for investors.”
(Source: Interactive Investor)
Interactive Investor, the online investment platform, recently released its clients’ most traded investments, by number of trades, in August 2017.
Commenting on the results, Lee Wild, Head of Equity Strategy at Interactive Investor said: “Following an exhausting 2,000-point rally between February 2016 and the record high in June this year, equity markets have extended their pause for breath, moving largely sideways over the summer months.
“Both the FTSE 100 and broader FTSE All-Share index rose less than 1% in August, though North Korean sabre-rattling tested investors’ nerves. Concerns that Kim Jong-un could nuke Guam, the US west coast or anywhere in between began a rollercoaster ride through the month, as enthusiastic buyers took advantage of each sell-off.
“Mopping up underperformers like Barclays proved a popular trade. After falling 6% in August, Barclays shares haven’t been this cheap since November 2016.
“Trading at a discount to most domestic peers on several key multiples, Barclays gatecrashed the top five most-traded large-caps on the Interactive Investor platform as buyers outnumbered sellers by more than two-to-one.
“AstraZeneca’s popularity proved fleeting as bargain hunting following July’s crash dried up. Investors who bought heavily last month below £43 are busy counting profits, currently a healthy 8%.
“Perhaps the biggest story to pass under the radar in August was the AIM market’s break above 1,000 for the first time since summer 2008. It’s easily outperformed the other domestic indices in 2017 so far, rising 20% in the past eight months.
“There were big moves in August by some of the junior market’s biggest companies, among them Frontier Developments (67%), Plus500 (45%), Blue Prism (33%) and IQE (29%).
“It was IQE that piqued interest among investors in August, almost toppling UK Oil & Gas from top spot as trading volume on the Interactive Investor platform more than doubled.
“A rally, given fresh momentum by a bullish update in July, spilled over into August, pushing IQE shares to new highs. There’s real excitement here as market watchers speculate about the possibility its chip components feature in Apple’s new iPhone 8, due to be launched next week (12 September).
“Internet of Things (IoT) hopeful Telit Communications came from nowhere in August following a profits warnings and shock departure of its CEO. A subsequent plunge in the share price and extreme volatility made it a trader’s favourite.
“Overseas, trading volume for Apple doubled as the shares surged by 10% in August. Apple shares typically nudge higher ahead of major product launches and the unveiling of the iPhone 8 next week has pushed the share price to a record high.”
(Source: Interactive Investor)
The government announced a few weeks back that a new immigration system will be in place by March 2019 when the free movement of people between the EU and the UK ends.
Immigration Minister Brandon Lewis was speaking as the government commissioned a "detailed assessment" of the costs and benefits of EU migrants, and publicised the closing time for free movement post-Brexit.
As this would have a serious impact on social, economic and political agendas, Finance Monthly has below heard form a number of sources with their thoughts on the prospect of closed immigration.
Ian Robinson, Partner, Fragomen:
It just won't be possible to get everything ready and Ministers need to think seriously about letting free movement continue for a limited period after we exit the EU. A full labour market review is absolutely essential and it is only fair that employers get a say over immigration policy. Labour and skills shortages won't go away after Brexit; if anything they could be exacerbated. Immigration has an important role in plugging the gaps. But a year long review doesn't leave very long for implementation. You have to ask whether six months to write the law, create the technology, recruit and train Home Office staff and then get business ready will be enough time.
Paul Taplin, head of change, Voyager Solutions:
It is widely accepted that Brexit will have a major impact on our UK workforce - regardless of any labour agreements that are made. The good news is that companies protect against this risk – by capitalising on the fast accelerating world of Robotic Process Automation (RPA). Skills gaps should be examined in areas where it will take longer to develop and replace people, and areas where a human workforce can be supplemented (or replaced) by a robotic workforce.
For example, in shared service centre operations, now is the perfect opportunity for UK organisations to review their workforce from a number of perspectives. For those that have off-shored / outsourced to an EU country, there may be a change in the economics, levies or exchange rates which impact the business case. For organisations that have significant non UK EU nationals performing key roles in a UK shared service centre, now might be the best time to look at the economics of outsourcing.
In both scenarios, organisations should accelerate any plans to review the business case for RPA – it will be significantly cheaper than full time equivalent human workers, so could solve the problem of covering key shared services roles. Activity areas to be considered for automation could include; data entry, payroll / T&A, expenses administration, personnel administration and recruitment admin in HR. Other business process candidates for automation include; P2P, order to cash, record to report, procurement operations, collections, cash management in finance and many others.
Ultimately, it’s important for organisations to remember that any workforce planning efforts will not be wasted if Brexit doesn’t have the expected impact – this should be done anyway - and will provide greater resource efficiencies across operations.
Bertrand Lavayssière, Partner & Managing Director UK, zeb:
Over the years, we have worked regularly with our European clients to find locations for their centralising European operations such as back-offices (for example for FX, credit lines, Trade Finance), institutional sales, risk and/or compliance functions. A key part of this is to compare the various locations. The usual criteria we will look at are costs, notably real estate, taxes, cultural proximity, accessibility, political environment, availability of professional support resources such as lawyers, consultants, etc. and, of course, availability of resources. The comparison is between major European cities (e.g. London, Paris, Frankfurt, Amsterdam, Dublin, Brussels, Krakow) or nearshore/offshore cities/locations (e.g. Mumbai, Porto, Casablanca, Mauritius).
As a location, London is second to none as it offers a unique mix of skills depth (different levels of expertise/management levels) and scope in terms of the number of financial activities covered and the multitude of languages spoken by employees. For example, we were working for a major European Corporate lender, which had more than 40 subsidiaries/branches across Europe. For efficiency and effectiveness reasons, we decided to centralise the accounting/general ledger, credit, cash management, trade finance, and foreign exchange back office activities of each of their European sites into one place, leaving notably the management, regulatory and sales activities locally. London was identified as the most suitable place for this central hub, owing to the fact that the majority of the staffing was to be sourced locally. As already mentioned no other city can provide the breadth and depth needed in terms of languages spoken.
London is and will continue to be attractive for banks and other FIs because of the critical mass created and the variety of resources available. This critical mass generates numerous ripple effects such as the availability of numerous FS specific professional services such lawyers, tax experts, consultants, etc. As this is widely known in the European banking community, many bankers/insurers come in London to find a job without a contract yet manage to find a position relatively quickly. The new immigration laws may unbalance this de facto and well-oiled eco-system, however the appeal of London should still see it withstand such changes.
Beenu Rudki, Immigration Director, Lewis Silkin:
The ‘fair and serious offer’ on the future rights of EU citizens, laid out on 22 June 2017 by Theresa May, offered EU nationals arriving before Brexit the chance to acquire the same rights to work, healthcare, and benefits as UK citizens. The proposition entailed giving ‘settled status’ to three million EU citizens and agreeing a cut-off point for freedom of movement between the UK and the EU between 29 March 2017 and 28 March 2019, the date at which Article 50 Brexit negotiations are expected to end.
This announcement has major implications for EU nationals and their family members, a significant number of whom work in the UK’s financial services industry. In 2016, the London Assembly Economic Committee produced a report outlining the impact of Brexit on London’s financial and professional services sector. The report highlighted how crucial the industry is to London’s economy and reiterated the UK’s importance as a hub for both domestic and overseas talent following exit from the EU.
Over a year after the Brexit referendum result, the government has now commissioned the Migration Advisory Committee (MAC) to provide a detailed assessment of the role EU citizens play in the UK economy. The commissioning letter asks the MAC to advise on an immigration system aligned with modern industrial policy. The MAC will need to consider different sectors, regions, and skill levels to provide insight into the sort of immigration policy that will be needed in the years to come.
Before the final MAC report is delivered in September 2018, UK financial sector firms should review what options are open to them in order to avoid potential disruption to their business in the future. Organisations should also be prepared to provide data and case studies to the MAC to avoid being left behind in the new immigration system.
Russ Shaw, Founder, Tech London Advocates:
Continued uncertainty around immigration policy in the UK is damaging the country’s reputation as a destination for fast-growth tech companies. The cabinet is intensifying this issue by failing to present a united front, and using consultations as a means to delay its decision rather than inform it. The Home Secretary’s welcome news that there would not be a “cliff edge” in 2019 was refuted days later by the latest statement from the Prime Minister, saying Freedom of Movement would end abruptly. This confused messaging does little to reassure the UK’s tech companies and entrepreneurs, who have remained on edge since the Brexit vote and waiting for clarity on their ability to access world-class talent.
Access to global talent is a top priority for tech companies, and the government needs to ensure that immigration policy meets this pressing need. The Cabinet needs to resolve its differences and ensure that the UK tech sector can prosper, ultimately bringing economic growth to the whole economy. The sooner the government can clarify its position on immigration the better, as that will eliminate uncertainty and allow for investment and talent to continue flowing into London.
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 details of the Government agenda for the next two years have been revealed; and the global delivery experts Fastlane International say there is some good news for exporters and logistics companies.
The delayed Queen’s Speech has finally been delivered, and the e-commerce delivery specialists Fastlane International say that there is some good news for exporters and logistics; though many Brexit details remain unclear.
Says Fastlane’s Head of Consumer Research, David Jinks MILT: ‘There are eight bills tackling Brexit alone; but the real details of the Government’s approach to Brexit, and how wedded they still are to a ‘hard’ Brexit - leaving the Customs Union and the Single Market entirely - remains to be seen as negotiations unfold.’
David comments below on the Bills introduced:
- The Customs Bill will contain legislation to ensure the UK has a stand-alone UK Customs regime on exit: not entirely good news for exporters and logistics companies hoping to see few significant changes to current tariff free exports and imports. However, the stated flexibility to accommodate future trade agreements with the EU and others does perhaps pave the way for a softer Brexit, including the opportunity to retain tariff free borders.
- Additionally, the Trade Bill will introduce a legal framework for Britain to agree free trade deals with countries and trading blocs around the world; and it is to be hoped this includes opportunities for deals with Nafta - the group made up of Canada, Mexico and the US – and the remaining members of the Trans-Pacific Partnership (TPP), the deal which was due to be implemented between 12 countries, including Australia and Japan, until Donald Trump pulled the US out of the agreement.
- More good news for UK logistics companies was the Automated and Electronic Vehicles Bill. Fastlane believes the future of UK courier services will be closely linked to greener, autonomous vehicles delivering in urban areas.
- The news that the Government is pushing ahead with its High Speed 2 Phase 2A Bill – the so called HS2A extension of the HS2 railway from Birmingham to Crew - will mean more freight transport will be able to use the existing West Coast Mainline as slots are freed-up when high-speed passenger services switch to the new line.
- News of a Commonwealth Summit next year will also help concentrate plans for British exporters post Brexit. From Australia to Zambia the 52 member countries present an A-Z of opportunities for business.
- Finally, as e-commerce delivery specialists Fastlane was interested to hear of a Digital Charter in the Data Protection Bill. Measures to crack down on internet crime help increase trust in online transactions.
(Source: Fastlane)
Below, Tamara Lashchyk, a Wall Street Executive and Business Coach, talks to Finance Monthly about the current state of markets in the US and the impact that Trump's Presidency will have on the strength of America’s economy. Tamara has 25 years of experience working at multiple Wall Street investment banks including JP Morgan, Bank of America and Merrill Lynch just to name a few. She also recently authored the book “Lose the Gum: A Survival Guide for Women on Wall Street.”
Over the last 12 months the US Equity Markets have shown steady signs of growth until last November when the US elections sent the stock market soaring into another stratosphere. A 16% market surge over the last six months could have an intoxicating effect on investors, but one should heed a word of warning about using market performance as the sole barometer of economic health. With GDP growth hovering just below two%, the stock market has fast outpaced the growth of the real economy.
Although corporate profits are a contributing factor to this bull-run, much of the current market rally has been fueled by the economic optimism generated by the Trump campaign and his promise to deliver a pro-business agenda. Any interference in Trump’s ability to deliver against that agenda could halt this market momentum and even send it towards a decline.
But in the wake of an administration riddled with controversy and scandal, the private sector sits anxiously awaiting, to see on how much of this promise Trump can actually deliver. Topping the heap of the Trump strategy is Tax-Reform and a reduction of the corporate tax rate which would stimulate profits; repeal of onerous government regulations particularly in the banking sector; and renegotiation of trade deals.
But the clock is ticking and Trump’s time horizon could be much shorter than the four year term of a presidency. If the all stars and planets align for Trump then he will have the full duration of his time in office to work with a Republican Congress. But with mid-term elections less than two years away, Trump’s opportunity to deliver may evaporate just as they did for President Obama when he lost both the Senate and the House.
At this point however, the mid-terms seem like a distant concern while the greater issue is the dark cloud of political smoke that engulfs this Administration. Whether or not there is actually fire remains to be seen, but in the meantime all the political noise creates an unproductive distraction that pulls Trump’s focus towards political warfare rather than delivering against his pro-business agenda. If any of the countless allegations are proven to have merit, a Trump impeachment could also be on the horizon.
To understand the impact that a disruption of Trump’s presidency may have from an economic standpoint, one should take a closer look at the current state of the economy. If you peel away the market enthusiasm and look at the economic fundamentals, the real economy is on solid ground and has been for quite some time. Unemployment continues to steadily decline although recent figures show signs that the decline is tapering off as underemployment and non-farm payrolls have reported softer than expected numbers. Caution regarding the slowing pace of growth is already priced into the market as seen by the return of the 10 Year Treasury yields back to their November levels. Inflation is under control eliminating the need for aggressive rate hikes by the Fed but a quest for normalization is still at the forefront of the Fed agenda as we balance against the danger of falling into a deflationary trap. Forcing a rate hike however, could send the economy into a tailspin so the Fed will likely play it safe by running the economy hot and dealing with the consequences of more money supply in the market.
So all in all, the fundamentals paint a solid economic picture, but they by no means match the gangbuster returns of the markets. Although the stock market is one of the leading indicators, in the past it has proven itself to be a cautionary tale, especially when considered in isolation. It is therefore important to look beyond the superficial gains of the recent market rally when evaluating the strength of the US economy.
Financial passporting enables businesses across the EU to operate throughout member states without needing specific authorization for each country they trade in or provide cross border services within. Craig James, CEO of Neopay, explains to Finance Monthly that the EU stands to lose if financial passporting is revoked, and how a deal could be the best outcome.
Since the country voted for Brexit in June last year, there has been uncertainty about what the future holds, both for Britain and the EU. But, with Article 50 expected to be triggered anytime now, the next 24 months will be dominated by negotiations between the UK Government and the remaining 27 EU nations.
A major sticking point will be the role the City of London continues to play in the financial world in Brexit Britain – particularly when it comes to e-money and passporting. It goes without saying that the UK is considered the financial hub of Europe – most nations looking to do deals across the EU use London as a means of access – not to mention that as one of the world’s largest economies, our financial sector plays a big role in the rest of the world.
No matter what happens, or what deals are put on the table in the next two years, what is essential is that the Government recognises how important the UK’s ability to passport to the rest of the EU is to the wider economy – £27 billion in annual revenue according to Oliver Wyman.
The benefits of passporting for businesses and the economy are obvious.
Through the regime, firms can operate across the European Economic Area (EEA) with a single licence, from one jurisdiction, as long as the regulator is informed by the firm of their intention to use the licence to passport.
Whether Britain remains a member of the European single market could be a determining factor as to whether the country can remain a hub for passporting across the EU bloc, as being a member is a requirement for accessing the benefits this process brings.
If the UK withdraws from the single market, which the Prime Minister has indicated will likely be the case, it will signal the end of the established passporting regime, and could result in a US style arrangement where firms are required to register in each individual state.
However, while this would be a cause for concern in the UK economy, it could be a much bigger problem for the rest of the EU. As the fifth largest economy in the world, Britain will remain a nation that most e-money and payment businesses will want access to.
One of the reasons the UK is a preferred destination for firms looking to passport financial services is that the Financial Conduct Authority (FCA) has made it simpler for this to happen in the UK compared to the rest of the EU. This is not to mention that once the UK is free to make its own decisions on trade and regulations, it will have the ability to make itself an even more attractive prospect for firms.
The UK is also considered a pathway to the rest of the world outside of the EU, significantly including the US, so would likely remain a central destination for firms looking for efficient passporting.
On the other side, the EU would be required to establish a new finance hub. Some reports have suggested Luxembourg or Frankfurt could be gearing up for this role, but neither has the regulatory convenience of the UK and are far behind in developing these arrangements. That leaves the option of registration in individual nations, which again, increases the bureaucracy and is a convoluted and cumbersome regime for a fast-moving and technologically-developed market.
Considering that simply setting up a bank account in a foreign jurisdiction is already problematic and will cause significant delays, it will remain in the EU’s general interest to retain the status quo and allow the UK to remain the passporting destination for the wider union.
To highlight this point further, a Freedom of Information (FOI) request we filed with the FCA has revealed that as many as 75% of new payment firms authorised in the UK in the last eight years, including many from the US and outside the EU, have used the passporting regime to export their services. This is significantly higher than the number of firms looking to enter the UK from Europe and suggests the EU stands to lose out more than the UK if a deal is not reached to retain the current passporting regime.
Questions also need to be asked about the future of e-money and financial services with regards to passporting, especially in the area of expanding the market beyond the borders of the EU.
As a single entity, the UK would arguably be in a better position to negotiate deals with other nations to expand passporting rights. This would be an attractive prospect as emerging markets in the Middle East continue to grow.
While it could be argued that the UK’s financial market could be in a better position post-Brexit than the EU if passporting rights are revoked, it makes more sense for those involved to compromise on this issue above others.
No matter what the future outside of the EU looks like, or the EU’s without the world’s fifth largest economy on board, it is essential businesses can retain the ability to operate across borders as efficiently as possible, and retaining the one licence agreement is the best way to ensure that. Failing to establish this primary principle could lead to long term unrest and a detrimental business environment far beyond the two year negotiations ahead of us.
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:
- Professional business services
A FTA should include significant provisions surrounding the mutual recognition of professional qualifications and regulatory structures. It should also include rights of establishment for all types of UK service providers, particularly legal services, in the EU and vice versa. - Data protection standards
The UK should aim to secure an adequacy decision from the European Commission, which recognises that the UK has adequate data protection standards, in order to maintain the free flow of data. This is particularly important for digital service providers. - Telecommunications
To ensure UK consumers do not suffer increased prices, a UK-EU FTA should include provisions extending the abolition of roaming charges in the UK beyond 2019. - Broadcasting licences
Broadcasting licences from Ofcom should continue to be recognised in the EU. - Intellectual property
Strong protections should be afforded to intellectual property rights across the creative services sector, such as for registered and unregistered designs. - Aviation
UK airlines should be able to fly to any point within the EU and provide intra-EU services, either through full voting membership of the European Common Aviation Area (ECAA), or by means of a comprehensive UK-EU air services agreement. This will allow UK airlines to continue to offer the routes they fly today.
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)
