Business News 12th June 2017

We hope you enjoy reading the business news compiled by the Credit Protection Association on Monday 12th June 2017 for its members and visitors.

Business Confidence drops following election

A snap poll of 700 members of the Institute of Directors found a “dramatic drop” in confidence following the hung parliament. The 700 members who responded to its survey wanted a rapid agreement with the European Union on transitional arrangements for Brexit, along with clarity on the status of EU workers in the UK. There was a negative swing of 34 points in confidence in the UK economy from its last survey in May. 20 per cent are still optimistic about the UK economy over the next 12 months, But some 57 per cent are now either quite or very pessimistic – a “net confidence” score of minus 37. This compares with May, in which 34 per cent registered their optimism, and only 37 per cent reported pessimism, a net score of just minus three.

Stephen Martin, director general of the Institute of Directors, said: “It is hard to overstate what a dramatic impact the current political uncertainty is having on business leaders, and the consequences could – if not addressed immediately – be disastrous for the UK economy. The needs of business and discussion of the economy were largely absent from the campaign, but this crash in confidence shows how urgently that must change in the new government. Nearly two thirds of IoD members believe uncertainty over the make-up of the government is “a significant concern” for the UK economy, with a further 27 per cent describing it as a “slight concern”. A majority (59 per cent) believed another election this year would be somewhat or very unwelcome. Only 23 per cent supported a further election.

Consumer Confidence

Accordning to Visa Europe, consumers are continuong to increase their spending but it increasing at the slowiest rate since early 2014. This is hitting businesses. According to figures from Lloyds bank, companies are also growing at the slowest rate in three years.

Calls for rethink on Brexit

The Confederation of British Industry plans to canvas its members regarding the implications for business. Its president, Paul Drechsler, said: “The CBI has been calling on both European and UK negotiators to put the economy and people at the heart of these crucial talks.”With only days to go before Brexit negotiations begin, the UK needs to be quick out of the blocks and agree on transitional arrangements, guarantee EU citizens’ rights and shift the focus of formal talks to future trading relationships.”Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the election result had reduced the risk of a hard Brexit in 2019 and increased the chance of Britain remaining in the single market. “We judge that the probability of this “soft Brexit” scenario is about 60%, with a 35% chance of a negotiated “hard Brexit” and a 5% chance of no deal, in which the UK falls back on World Trade Organisation rules,” he said.

Business demands Brexit answers

Greg Clark, the pro-Remain business secretary, summoned leading business groups to co-ordinate a push for a softer Brexit following the General Election. Lobbying groups representing small and large organisations across the country were quick to call for a renewed focus and more specifics on Brexit, with the FSB calling for a delay in the start of talks. FSB national chairman Mike Cherry said: “The need for a transition period now becomes even stronger, providing the time to get Brexit right.” Meanwhile, Stephen Martin, director general of the IoD, said: “Now is the time to move on from the rhetoric of the election campaign and focus on preparing for Brexit talks. The issues of access to EU markets and the need for skilled workers are still paramount.” Elsewhere, Terry Scuoler, chief executive of EEF, suggested “the Brexit negotiating strategy requires a careful rethink.” Carolyn Fairbairn, director general of the CBI, and her counterpart at the British Chambers of Commerce, Adam Marshall, were also insistent on the need for clear objectives over Brexit considering the election result. Meanwhile, Theresa May insisted she will stick to the timetable of starting the Brexit talks a week on Monday.

Industrial output weaker than expected

The UK’s industrial output rose by much less than expected in April, according to data from the ONS. Output rose by just 0.2% in the month, much lower than the 0.8% increase forecast by economists. Manufacturing output grew by 0.2%, which was also much weaker than expected. Separate ONS figures showed the UK’s trade deficit narrowed in April. The goods trade deficit with the rest of the world narrowed to £10.4bn from £12bn in March, which was mainly due to a sharp fall in imports. The overall trade deficit, covering goods and services, narrowed to £2,1bn in April from £3.9bn the month before.

BBC News The Guardian, Page: 31

France

French President Emmanuel Macron’s centrist party claimed a sweeping victory in Sunday’s first round of elections to the National Assembly, despite a historically low turn-out. La Republique en Marche and its allies took 32.3% of the vote, official figures released early Monday showed. Polling firms Kantar Public-onepoint predicted that LREM and its centrist allies would take a landslide 400 to 445 of the assembly’s 577 seats after next Sunday’s second round of run-off votes. A second round of voting will determine the actual number of seats Macron wins. The first round for the most part eliminates eliminates candidates who have gathered less than 12.5 percent of registered voters.

Business will want answers on tax changes soon

Tom McPhail, the head of policy at Hargreaves Lansdown, believes it will be more difficult for the Conservatives to deliver an increase in the higher rate threshold following the election, as pressure to tax higher earners more increases. But the DUP are in favour of raising the 40% rate to £50,000 by 2020 and others expect the policy to be passed unchanged. Meanwhile, business has called for clarity on measures that were withdrawn from the Finance Bill when the election was called, including: a reduction in the tax-free dividend allowance from £5,000 to £2,000; a reduction in the money purchase annual allowance from £10,000 to £4,000; the introduction of Making Tax Digital; restrictions on non-dom income tax, CGT and IHT; increase in tax-free employee pension advice from £150 to £500 and redundancy payments being subject to tax and NI. The Times points out that tax and NI rises could still happen after Mrs May ditched the so-called tax lock promise made in the previous election.

Varley: Government needs to re-engage with business

Writing in the Telegraph, EY chairman Steve Varley says it is now more important than ever that the government and business work together to foster an environment where the benefits of global business are felt locally. With trust in business down sharply over the past year, Mr Varley says it is vital that UK business not only thrives during this period of uncertainty, but works together with government “for the benefit of society as a whole.” He calls for the government to re-engage with business to strike the best Brexit deal for Britain.

There is a magic money tree — it’s called QE

Ros Altmann in the FT examines how QE policy has negatively impacted pensions and wealth distribution. He considers writing off central bank-purchased bonds, and using QE to fund social spending.

US Interest Rates

America’s central bank is poised to raise interest rates for the second time this year as policymakers take another step towards normalisation amid an improving economy. The US Federal Reserve is expected to raise its federal funds target to between 1% and 1.25%, from 0.75% to 1% in just the fourth increase since the financial crisis.

Bank Of England

However in the UK The Bank of England is more likely to keep rates firmly on hold than before the election at the next week’s meeting and refrain from making any strong signals about the outlook for policy, Paul Hollingsworth, an economist at Capital Economics, said. With the General Election resulting in a hung parliament, there is a lot of uncertainty about the outlook for demand, Brexit and policy, he noted. A government was formed quite quickly after the 2010 election and the EU referendum. But it could take longer this time around, he said.

Pound in Limbo

The pound is in “limbo” as traders wait to see whether Theresa May can hold together her government, says Neil Wilson, an analyst at ETX Capital. Sterling is holding fast around $1.274 mark, the level it’s been at since election night when it dropped almost 2%. He says the deal between the Tories and the Democratic Unionist Party has kept a floor under the currency, but there could be further falls if the arrangement comes unstuck. “This would increase the likelihood of a second election and heighten the chances of a Corbyn-led government, which might spook markets,” he says.

UK Markets

The FTSE100 remains stable, buoyed by the foreign focus of the majority of its members. The fall in the pound has increased the value of those foreign earnings. The more domestically facing FTSE 250 also shook off early concerns and has stabilised following the forming of a conservative government with the DUP.

Asian Markets

Asian shares traded in negative territory on Monday as markets turned cautious, following the surprise hung parliament result from the U.K. election last Friday and ahead of a two-day Federal Reserve meeting that begins.

U.S. Markets

U.S. shares closed modestly lower as a sell-off in technology shares spoiled an otherwise buoyant day in the US stock market as companies from Apple to Nvidia tumbled.

Oil

Oil prices rose as futures traders bet the market may have bottomed after recent falls, even as physical markets remain bloated, especially from a relentless rise in U.S. drilling.

Gold

Gold inched up as Asian shares fell and the dollar eased ahead of a U.S. Federal Reserve policy meeting that could give clues on the pace of interest rate hikes over the rest of the year.