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UK election results hit consumer confidence – YouGov

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The indecisive outcome of this month’s general election damaged consumer confidence, according to data released by YouGov.

The research firm saw a sharp dip in the important economic measurement immediately after the vote.

“UK consumer confidence slumped sharply after the indecisive result of the general election, falling to levels comparable to the immediate aftermath of last year’s vote to leave the EU, our latest analysis with the Centre for Economics and Business Research shows,” explained YouGov head of reports Stephen Harmston.

“We found that in the first eight days of June – before the results were known – the YouGov/Cebr Consumer Confidence Index stood at 109.1, around the same level it was at the month before the snap election was declared. However, in the first twelve days after the votes were counted, the Index fell to 105.2.”

YouGov identified two key drivers in the data: lack of confidence over property prices, and a “slow puncture” in people’s household finances.

“However, the data suggests that the job security and business activity measures, both for the last 30 days and the next 12 months, are proving relatively resilient,” said Harmston.

 

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Britain ‘weary’ of austerity, says Hammond in Mansion House speech

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British voters have tired of austerity and the health of the UK’s economy depends on the outcome of Brexit negotiations, UK chancellor of the exchequer Philip Hammond said in his Mansion House speech on Tuesday.

The annual event, delayed due to last week’s Greenfell Tower disaster, saw the chancellor lean towards a ‘soft’ Brexit with economic matters to the fore.

“Britain is weary after seven years of hard slog repairing the damage of the great recession,” said Hammond. “Funding for public services can only be delivered in one of three ways: higher taxes; higher borrowing; or stronger economic growth. And only one of those three choices is a long-term sustainable solution for this country in the face of the inexorable pressure of an ageing population.”

Hammond addressed Brexit in milder terms than he did on the BBC’s Andrew Marr Show in which he said “no deal would be a very, very bad outcome for Britain” on Sunday.

“The future of our economy is inexorably linked to the kind of Brexit deal that we reach with the EU,” he said yesterday.

“Our departure from the EU is underway. But ensuring that it happens via a smooth pathway to a deep and special future partnership with our EU neighbours, one that protects jobs, prosperity, and living standards in Britain, will require every ounce of skill and diplomacy that we can muster.

“Yesterday was a positive start. It will get tougher. But we are ready for the challenge,” he said.

Brexit negotiations, led by Brexit secretary David Davis and EU negotiator Michel Barnier, opened in Luxembourg on Monday.

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Are businesses turning away from Theresa May?

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Katya Puyraud of Euro Start Entreprises interprets the mood in advance of election day.

Think Conservatives and you think business. The current governing party has always been inextricably tied to the interests of commerce in the UK, back to Thatcher and beyond. Their policies of privatisation, corporation tax cuts and red tape reduction have developed an image of economic competence that has seen businesses back them to the hilt. A combination of vocal support and party funding has formed a significant part of the last two Tory electoral victories.

Recently, however, this cast-iron support has come under question. An apparent move away from the party’s favoured free market economic model has left businesses lukewarm and wondering where the Tories are headed. While it’s debatable whether the opposition’s vision is more palatable to business, the fact that this debate is even being had may worry the current government in the run up to June 8th.

Manifesto malaise
The Conservative manifesto has been a difficult sell for many groups, but the most unusual dissent has come from business interests. Analysis by the Telegraph of small business leaders suggests that the reaction on social media has been almost overwhelmingly disapproving: over 50% of responses were negative, and only 8% were clearly positive. Larger businesses have not taken it much better, with Morrisons boss Andy Higginson calling their policies an “attack on business.”

Chief among the complaints is the lack of costing throughout the manifesto, making up 34% of complaints logged by the Telegraph. This is thrown into particularly stark relief by the ‘fully costed’ Labour manifesto, though there are indications that this was rushed and is not entirely accurate. Still, combined with the recent U-turn on the cost of social care, May seems to have undermined the ‘strong and stable’ slogan that has been the bedrock of her campaign.

It is the general willingness to complain that might hurt May the most. The manifesto pledges are only the latest in a line of decisions that have tested the resolve of the business community; these include raising the minimum wage, a controversial apprenticeship levy and a flagship policy to cap energy prices. With the additional burden of slowing consumer spending and political uncertainty, business leaders say they are struggling to shoulder these burdens.

Deal or no deal
Dwarfing these, however, is the thorny issue of Brexit. Businesses have put a brave face on things, and most feel confident of pulling through what will be a challenging period. But they still face a significant instability, not least because of the government’s insistence on a ‘hard Brexit’, and an unwillingness to clarify its negotiating position this early on.

For businesses contributing to the UK’s £14.3bn trade deficit, import costs have risen thanks to the weakened pound sterling. These now have to be passed on to consumers who are spending less, contributing to the recent fall in growth. And the future of exporters remains uncertain, with 44% of UK exports going to other EU countries.

It’s notable that in the weeks since the manifesto launch, Theresa May has moved away from domestic policy issues and back towards Brexit. While she notably did not support it, her apparent willingness to leave negotiations with ‘no deal’, as opposed to ‘a bad deal’, has won plaudits.

Whether this is an economically sensible approach is questionable; any deal involving billions of pounds in settlements is likely to be seen as a bad deal. But what some would see as stubbornness, many see as strength – a quality that the more demure Jeremy Corbyn sometimes is perceived to lack.

Opinion still varies on Brexit when it comes to ideological grounds, as well as other political factors, but it did not represent the pragmatic choice. The ability to acquire the best person for the job and trade freely only benefits business, and these abilities remain under direct threat. The last thing SMEs want from the government at this uncertain juncture is policies that upset the status quo.

Labouring the point
On these grounds at least, Labour do not present a particularly credible alternative. Jeremy Corbyn has proposed a tax rise for the top 5% of earners in order to pay for massive public expenditure, as well as nationalising certain keystone industries; none of this plays particularly well to larger businesses. Questions have also been raised of Corbyn’s leadership qualities following Labour infighting, something that may inhibit his influence on the global stage.

But smaller enterprise will not be hit by these tax cuts, and big business is hardly in favour of the Tories’ move to give employees more power in the boardroom. While its position on Brexit has been muddled, Labour also represents the most likely choice to pursue a softer approach to negotiations, and would do so without the dubious services of Boris Johnson.

What this shift represents remains uncertain. It is entirely possible that business interests will continue to simmer, aware that there are few options other than to quietly lobby government. But the outcome of the election could prove decisive.

A more likely scenario than a Labour victory would be a coalition government. This would have the potential for more balanced policymaking, involving both sides of the spectrum – and both sides of the Brexit vote – in decisions with decades of consequences. But it could also descend into unwelcome chaos and uncertainty, given the polarised opinions on each side. It would also throw doubt on Theresa May’s mandate to continue as both prime minister and party leader.

As ever, British enterprise will try to adapt to the hand it’s given. Brexit is not an immediate positive or a long-term one, but enough remains to be negotiated that businesses can be optimistic. While social issues have altered the momentum of the election campaign, the battle for Brexit is probably where the war will be won.

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Former journalist Katya Puyraud is the co-owner of Euro Start Entreprises, specialising in company formation in France and the rest of the EU. Since 2007 Euro Start Entreprises has helped budding digital nomads, entrepreneurs and expanding SMEs to open their companies in over 30 countries worldwide.

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‘Third parliament of austerity’ on horizon – IFS

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Austerity will last until into the 2020s, with economic growth and pay-rise levels remaining stagnant, according to the Institute for Fiscal Studies’ budget commentary.
The think-tank’s response to yesterday’s budget delivered by Chancellor of the Exchequer Philip Hammond pulled few punches on the state of the UK economy.
“On the public finances the OBR made by far its biggest ever revision to forecasts between Autumn and Spring for the current financial year,” said IFS director Paul Johnson. “In November it thought we would be borrowing £68 billion this year. It now thinks we will be borrowing just £52 billion. Yet it has barely changed its forecasts for future years. We remain on course to be borrowing about £20 billion in 2020 – that’s £30 billion more than intended a year ago. That leaves a lot of work to do in the next parliament to get to the planned budget balance. It looks like being, I’m afraid, a third parliament of austerity.”
Johnson also argued that the UK has had what amounts to “a decade without growth”, with GDP per capita rising by only 2% since 2008.

“Income and earnings growth over the next few years still look like being weak,” he said. “On current forecasts average earnings will be no higher in 2022 than they were in 2007. Fifteen years without a pay rise. I’m rather lost for superlatives. This is completely unprecedented.”

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IFS predicts more spending cuts and low growth

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The Institute for Fiscal Studies has announced its Green Budget, with predictions and analysis highly critical of the UK economy.

The London-based think tank predicts that sharp spending cuts are due to arrive before the next election, with tax rising to a greater proportion of national income than has been seen since the mid-1980s: the IFS says that spending cuts and tax rises will continue into the 2020s.

The report was compiled with analysis from Oxford Economics, which expects a “relatively disappointing” 1.6% GDP growth this year, and 1.3% growth in 2018, with wages almost static.

“For all the focus on Brexit the public finances in the next few years look set to be defined by the spending cuts announced by George Osborne,” explained IFS director Paul Johnson. “Cuts to day-to-day public service spending are due to accelerate while the tax burden continues to rise. Even so, the new chancellor may not find it all that easy to meet his target of eliminating the budget deficit in the next parliament. Even on central forecasts that is going to require extending austerity towards the mid-2020s. If the economy does less well than hoped then we may see yet another set of fiscal rules consigned to the dustbin.”

Andrew Goodwin, Oxford Economics’ lead UK economist, said that the UK economy has thus-far achieved solid growth – but that it has been almost entirely reliant on the consumer. “With spending power set to come under significant pressure from higher inflation and the welfare squeeze, the consumer will not be able to keep contributing more than its fair share. Exports should be a bright spot, but overall a slowdown in GDP growth appears likely.”

“If the government is able to agree a transitional arrangement with the EU and make progress on a free-trade agreement then the impact of Brexit is likely to be fairly modest within our forecast horizon of 2021. However, the negative effects of leaving the single market and the customs union are likely to become clearer over time and we estimate that the new trading arrangements could reduce UK GDP by around 3% by 2030, compared with remaining in the EU. Should we fail to secure a free-trade agreement then the outcome is likely to be worse still.”

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Parliament to vote on Article 50, Supreme Court rules

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The Supreme Court has handed down its ruling on the government’s Article 50 obligations, with Parliament being given a vote to trigger the Brexit process.

The 11-judge court’s majority ruling was led by its president, Lord Neuberger, and has established that “the change in the law required to implement the referendum’s outcome must be made in the only way permitted by the UK constitution, namely by legislation,” the judges said in the summary of their judgement.

“The Supreme Court holds that an act of parliament is required to authorise ministers to give notice of the decision of the UK to withdraw from the European Union.” The Scottish, Welsh and Northern Irish devolved assemblies will not be given a say in matters.

Attorney general Jeremy Wright said that the government is “disappointed” but will comply, while Downing Street reacted: “The British people voted to leave the EU, and the government will deliver on their verdict – triggering Article 50, as planned, by the end of March. Today’s ruling does nothing to change that.”

Labour leader Jeremy Corbyn says that his party will work to amend the Article 50 Bill but not block it, while the Lib Dems will not vote for it without a referendum on the final deal.

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Britain “open for business” says May at Davos

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UK Prime Minister Theresa May addressed trade, globalisation and Brexit at Davos this morning in a keynote World Economic Forum speech.

May, who set out a Brexit strategy for the first time earlier this week, used the opportunity to speak in more general terms about the issues of the day – particularly globalisation and the UK’s place in the world.

“The United Kingdom – a country that has so often been at the forefront of economic and social change – will step up to a new leadership role as the strongest and most forceful advocate for business, free markets and free trade anywhere in the world,” she said.

May also said that the Brexit vote was a choice on the part of voters “to build a truly global Britain” and said that critics and said that international critics have failed to understand voters’ motivation.

She also focused on the pressures facing international institutions. “I believe strongly in a rules based global order. The establishment of the institutions that give effect to it in the mid twentieth century was a crucial foundation for much of the growing peace and prosperity the world has enjoyed since. And the tragic history of the first half of the last century reminds us of the cost of those institutions’ absence,” she said.

May said that Britain is “open for business” but set out a need for better corporate governance and social responsibility if globalisation is to attract popular support. “That is why I have talked a great deal about our country delivering yet higher standards of corporate governance, to help make the UK the best place to invest of any major economy.

“That means several things,” she said. “It means businesses paying their fair share of tax, recognising their obligations and duties to their employees and supply chains, and trading in the right way; companies genuinely investing in – and becoming part of – the communities and nations in which they operate, and abiding by the responsibilities that implies; and all of us taking steps towards addressing executive pay and accountability to shareholders.”

The prime minister concluded by referring to “that great Conservative principle – change in order to conserve”. “I am determined to make sure that centre-ground, mainstream politics can respond to the concerns people have today. I am determined to stand up for free markets, free trade and globalisation, but also to show how these forces can work for everyone,” she said.

This year’s Davos conference concludes tomorrow.

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DEBATE: Three months on from Brexit, has it benefitted UK business?

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Accountancy software firm heads Ed Molyneux of FreeAgent and Lee Murphy of Pandle debate whether the Brexit vote was a big blow to business

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Ed Molyneux, co-founder and CEO of FreeAgent says: “Following the referendum result I believed that ‘Brexit’ would be a big blow to the UK’s micro-business sector and I still believe this to be the case.”

“In the run up to the vote, the overwhelming majority of micro-business owners and freelancers were in favour of the UK remaining in the EU because they didn’t think a ‘Brexit’ would be beneficial for their own businesses or the economy in general.”

“Three months on from the vote, micro-businesses, which comprise around 95% of the UK’s total number of companies, have seen no immediate advantages from Britain’s decision to leave the EU. These businesses are actually in a state of limbo instead, as they are in for a lengthy period of uncertainty while negotiations take place over the terms of the UK’s exit.”

“I would urge the government to be as swift as possible in providing updates about how these discussions are progressing, and give every business owners in the UK clear, up-to-date information about what the effects of Brexit, whenever it does happen, will be on important issues such as trade and tax. British micro-businesses cannot be kept in the dark, given their immense contribution to the economy.”

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“Despite the fallout from Brexit many European businesses are still looking to set up shop in the UK,” counters Lee Murphy, owner of Pandle.

“Undoubtedly a few European business owners have been apprehensive about setting up in the UK because of Brexit, but as a firm we’re still taking on a lot of European clients. I believe the impact of the UK leaving the EU will be even less severe in the long term as it’s very unlikely that the EU would prevent reasonably free trade with the UK as it’s the biggest importer of European goods – at around 16% of all European exports.”

“British SMEs are resilient, and in recent years exports from the UK to non-EU countries have grown at a much faster rate than UK goods exports to the EU states. In fact, since 2007 we’ve seen exports of goods to non-EU countries rise by 54%, whilst goods exports to EU countries rose only by 15%.”

“At the moment trade agreements cannot be made with the UK directly, but rather with the EU as a whole. So post-Brexit, it’s likely the UK will make trade deals with preferred partners on terms which UK businesses can benefit from.”

“It’s important that, three months on from Brexit, small businesses don’t lose faith in the British economy and continue to prosper – as they have, and always will.”

“At the moment trade agreements cannot be made with the UK directly, but rather with the EU as a whole. So post-Brexit, it’s likely the UK will make trade deals with preferred partners on terms which UK businesses can benefit from.”

“It’s important that, three months on from Brexit, small businesses don’t lose faith in the British economy, and continue to prosper – as they have, and always will.”