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This Week in Brexit : The Economy 8th July

Greater Birmingham Chambers of Commerce

This Week in Brexit: The Economy

Fourteen days in and the Brexit related news shows no signs of slowing. What has remained consistent are the watchwords of the week: volatility and uncertainty.

Pound Sterling

The pound hit new lows on Thursday. While it showed promising signs against the dollar earlier in the day, rising to above $1.30, by close of business it had slumped back to near 31 year low of $1.2914. It fared slightly better against the Euro and closed 0.3% up.

This week, Goldman Sachs issued forecasts warning that the pound could slip as far as below $1.20 in the next three months. The combination of the UK’s current account deficit and Bank of England policy (i.e. low interest rates and expected further cuts to interest rates) have hit investment and demand for sterling.

It’s not all bad news though; the latest Markit/CIPS purchasing managers’ index showed manufacturing in June grew at its fastest for five months, rising to 52.1 from 50.4 the previous month. We will be keeping a close eye on the data to see if the weakened pound provides any further boosts to exporters in this sector.

FTSE 100 and FTSE 250

The FTSE fared better yesterday. The FTSE 100 closed 1% up and the FTSE 250 1.5% up. The FTSE 100 remains above pre-referendum levels. However the FTSE 250 remains significantly below pre-referendum levels.

As mentioned in last week’s blog post, commentators tend to view the FTSE 250 as a better measure of investor confidence in UK business (the FTSE 100 is dominated by companies with a major international footprint).

UK Property Funds

A number of commercial property funds announced temporary closures and/or devaluations this week in response to the falling value of the pound and a surge in requests to redeem investments.

What does this mean? Well, as the name suggests, commercial property funds invest in commercial property. They provide returns to investors based on increased property values and rental income. 

At its most simple level, the experiences of commercial property funds this week suggest that UK property is being viewed as a less attractive investment in the immediate aftermath of the referendum and the weakened pound.

Some commentators are predicting a fall in the price of commercial property and a slowdown in house price inflation. Although a period of slow house price inflation is not necessarily a bad thing, there are concerns that these market conditions could lead to a wider slowdown in activity if high street banks become more risk adverse in mortgage lending and developers scale back building projects.

However, it is still early days yet (a mere two weeks since the referendum) so it is far too early to tell what the mid and long term impact will be.

Other Announcements

The OECD released a report predicting that we’re likely to see negative impacts on the UK’s short-term labour market and UK real GDP growth is set to drop 0.5 percentage points in 2017 and 2018 resulting in a cumulative loss of 3 per cent by 2020 (click here).

Market research firm GfK reported a drop the sharpest drop in consumer confidence in 21 years post-referendum (click here).

George Osborne sought to rally investor confidence by pledging to cut corporation tax to below 15% (click here).

This Week at the Chambers

This week we’ve been focusing on communicating the views of our members to key stakeholders. Susan Acland-Hood, Director for Enterprise & Growth at Her Majesty’s Treasury, spent the day with us on Tuesday engaging with small and mid-sized members at a roundtable in the morning and a further roundtable session with Patrons after lunch before capping off the day with a visit to the Tyseley headquarters of SCC, Europe’s largest privately owned IT company.

Susan leads on working to promote sustainable economic growth by ensuring that government policy encourages private sector investment, enterprise and innovation. She is still keen to hear the views of members who did not attend on the day. If you have thoughts on what you would like to see prioritised in Government Brexit negotiations (or growth and productivity strategy more widely) that you would like to feedback to Susan Acland-Hood, please send it my way: H.Brealey@Birmingham-Chamber.com.

We are also still collating case studies of the immediate impact of the EU Referendum result and immediate member concerns to inform both our own and the British Chambers’ of Commerce’s lobbying priorities. If you’ve been affected by the referendum result and its impact on the economy (in good or bad ways) I would very much value hearing from you.

Finally, we’re actively supporting members who are looking to explore the world of exporting. You may well have heard that the weaker pound could be creating opportunities for exporters, particularly in markets like the USA. You can find out more about export essentials at this event (click here) on the 26th July. Alternatively you can call our UKTI team any time on 0121 450 4205.

Henrietta Brealey is Director of Policy & Strategic Relationships at the Greater Birmingham Chambers of Commerce.