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Market overview: United Kingdom

In the Global Business Monitor in 2016, I noted that the UK had two years of economic turbulence ahead. One year on, it certainly feels as though we are in the eye of the storm. Whether this lasts for another year only is perhaps wishful thinking.

Since the UK’s historic EU referendum, we have seen Theresa May installed as Prime Minister and in January this year we saw her lay out a vision for Brexit negotiations. March heralded the delivery of the much-discussed Article 50, which ignited the process of the UK leaving the EU, with formal negotiations beginning in June.

Amid this change, Theresa May called a snap General Election, which took place on 8 June, as the Conservatives sought to gain more seats and a stronger negotiating position with the EU. But even the best laid plans do not come to fruition and the Conservative Party lost a number of seats in Parliament, requiring it to turn to Northern Ireland’s DUP to create a majority government.

As the political games unfolded, businesses and the wider economic community continue to search for a sense of direction on where the economy is going and – importantly – what it will look like after the UK leaves the EU.

What is clear is that on the 10th anniversary of the global economic crisis, there is much uncertainty amongst UK SMEs and this has led to delayed investment decisions and lower sales expectations throughout the first half of the year.

The UK economy finished 2016 surprisingly strongly with GDP growth of 0.7% in the fourth quarter. However, signs for 2017 so far have been ominous, with sluggish growth of 0.2% in the first quarter and 0.3% in Q2. [1] As a result of this stunted growth, the Bank of England has downgraded its growth estimates for 2017, reducing from 2.0% to 1.9% in May[2] and again in July to 1.7%.[3]

The depreciation of the Pound has contributed to this mixed bag of results. On one side it has helped to boost exports with the manufacturing industry growing at near record levels according to July’s Manufacturing PMI. [4] However, the continued imbalance of a services-led economy means that the UK’s overall trade deficit has failed to shrink, reaching £8.9bn in July. This is largely as a result of imports becoming more expensive due to a weaker Pound.[5]

There are, however, some positive indicators. The National Institute for Economic and Social Research believes that global growth achieved so far in 2017 will lead to increased foreign demand for UK exports. It forecasts growth of 0.4% in Q3 and Q4 and 0.5% in Q1 2018.

Businesses are seemingly continuing with hiring intentions, with the unemployment rate falling to 4.5%.[6] Such low levels of unemployment, however, do present a separate challenge compounded by Brexit. According to the Recruitment and Employment Confederation, many SMEs are now struggling to plug the skills gap as a growing number of European workers decide to stay or return home amid the UK’s Brexit disentanglement.[7]

For the remainder of 2017 and into 2018, uncertainty and anticipation over Brexit negotiations are likely to dominate the minds of politicians and business owners alike. In the meantime, debate will likely continue on how UK businesses can boost export volumes while currency conditions remain somewhat favourable.

Edward Winterton, Chief Executive Officer, Bibby Financial Services UK

[1] https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/ihyq/pgdp
[2] https://www.cnbc.com/2017/05/11/bank-of-england-growth-downgrade.html
[3] http://www.telegraph.co.uk/business/2017/08/03/bank-england-super-thursday-dominates-markets-focus/
[4] https://www.markiteconomics.com/Survey/PressRelease.mvc/cd005c55d65b44fb91f3a3f8d14fcbdc
[5] https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments
[6] https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/timeseries/mgsx/lms
[7] https://www.rec.uk.com/news-and-policy/press-releases/staff-appointments-increase-at-fastest-rate-for-over-two-years-as-candidate-availability-drops
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