Wednesday 15 August 2018

Brexit triggered uncertainty weighed on Britain in 2017

GDP, which had been growing at the fastest rate in the G7, came in at 0.4% in the third quarter.

Brexit
Brexit

By Ravender Sembhy, Press Association City Editor

Britain’s decision to quit the European Union continued to spell acute economic uncertainty for the country in 2017, with growth slowing, consumer confidence tanking and City-based banks putting into motion contingency plans.

GDP, which had been growing at the fastest rate in the G7 and had held up in the immediate aftermath of the Brexit vote, came in at 0.4% in the third quarter, while eurozone economic growth motored ahead and outstripped the UK.

Inflation surged to levels not seen for more than five years, hitting 3.1% in November, as the full impact of the pound’s plunge since the Brexit vote sent the price of food, energy and services soaring.

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This led to the Bank of England delivering its first interest rate hike for a decade as it sought to cool inflation, with a rise from 0.25% to 0.5%.

KPMG chief economist Yael Selfin said: “2017 also marked the UK’s decoupling from the overall positive trend for the world economy.

“Higher inflation, Brexit-related uncertainty and poor productivity performance have all taken their toll on the UK economy: GDP growth is expected to moderate to 1.5% this year as consumers’ income is squeezed and spending is less forthcoming.

“We could see much the same GDP growth in 2018.”

As discretionary spending plummeted, several firms including Jaeger, Brantano and Palmer and Harvey collapsed into administration, with many citing falling consumer confidence and rising costs as factors.

Toys R Us teetered on the brink before securing a last minute rescue deal.

Sterling, which in the aftermath of the Brexit vote in 2016 was eviscerated, took another pounding following Theresa May’s humiliating general election defeat – although over the year it has climbed over 8% against the US dollar to around 1.33.

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The June ballot, ostensibly called to strengthen the Prime Minister’s hand in Brexit talks, resulted in the Conservatives losing their majority, with Brexit talks, and by extension British businesses, left in limbo for months following the result.

Theresa May’s last-ditch efforts to move talks on to trade following over a year of wrangling about citizens’ rights, the Irish border and divorce bill are unlikely to provide the certainty that businesses desire.

Chancellor Philip Hammond has all but admitted the Conservatives have no idea what they would like destination Brexit to resemble in terms of trade, regulatory convergence and immigration.

As the Tories dither, London-based banks are months away from being forced to act on Brexit contingency plans that could see thousands of jobs leave the UK.

HSBC has said it is on course to move up to 1,000 jobs to France, while JP Morgan – which currently has 16,000 staff in the UK – will ramp up operations at a number of its EU sites with plans to move up to 1,000 London front and back office roles.

Goldman Sachs – which employs 6,500 UK staff – is set to at least double its Frankfurt office to 400 staff through a mix of relocations and local hires.

American peer Morgan Stanley is understood to have plans to move 200 of its 6,000 UK staff to Frankfurt.

But Brexit uncertainty failed to choke off a string of deals in the M&A space in 2017, with Britain’s fiercely competitive grocery sector booking a number of high-profile transactions.

Supermarket giant Tesco ensured the year got off to a strong start when it sent a shockwave through the industry in January by announcing a £3.7 billion swoop for food wholesaler Booker.

The industry was given more food for thought in June when Amazon sealed 13.7 billion US dollars (£10.7 billion) deal to buy Whole Foods, causing shares in British supermarkets to tumble.

Away from retail, Standard Life and Aberdeen Asset Management ushered in one of the biggest deals of 2017 in March when it inked an £11 billion merger to create a combined company with a 16-strong board.

More recently, Walt Disney’s 52.4 billion US dollars (£39 billion) December deal for 21st Century Fox is set to have wider implications for the British media landscape.

Fox said it will press ahead with attempts to buy the 61% of broadcaster Sky it does not already own before the deal closes in 12 to 18 months’ time, which could hand Disney total control of the Sky News broadcaster.

Meanwhile, the FTSE 100 hit a fresh series of highs as international firms listed on the exchange continue to benefit from a weak pound, with experts predicting more records in 2018.

“The FTSE 100 could launch a concerted attack on the 8,000 mark for the first time in 2018”, according to investment platform AJ Bell.

“While issues such as Brexit, an economy that is hardly firing on all cylinders and political risk must not be dismissed, none of these fears are new and the UK market has three things going for it as we enter 2018 – performance, valuation and dividend yield,” the group added.

For all that the FTSE had to offer, it was bitcoin that stole the show towards the end of the year.

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Its price rocketed from 833 US dollars to near 20,000 US dollars on some exchanges as debate raged over whether this warranted being called a bubble.

As its value gyrates – its latest reading coming in at the 14,000 US dollars mark – the debate is likely to continue well into 2018 and beyond.

Press Association

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