Investment News

Economy to grow faster than expected into 2017 as UK sustains post-Brexit performance

by International Commercial Investment on November 4, 2016

Source: The Telegraph

The UK economy will grow faster next year than official predictions suggest, a pair of leading industry bodies have predicted.

The Confederation of British Industry and the National Institute for Economic and Social Research expect GDP to grow by 1.3pc and 1.4pc respectively next year, higher than the current Bank of England estimate.

The forecasts from both group for 2017 reflect positively on the health of the UK compared to the bearish post-Brexit recession forecasts promoted by HM Treasury in advance of the EU referendum.

These predictions match a wider trend among economists, who typically slashed their predictions immediately after the referendum but have gradually increased them in recent months as stronger economic data are published. Independent forecasts compiled each month by the Treasury show economists chopped their predictions for 2017 GDP to 0.5pc in July, but have now raised them back to 1pc.

The National Institute for Economic and Social Research (NIESR) has upgraded its forecast, predicting an expansion of 1.4pc next year – faster than the 1pc it predicted in August, though still a slowdown compared with 2016’s growth rate of an estimated 1.7pc.

The Confederation of British Industry (CBI) expects GDP to grow by 1.3pc in 2017 – slower than its previous pre-referendum forecast of 2pc.

But the estimates are higher than the 0.8pc the Bank is predicting for next year, based on its latest forecasts in August.

As part of its new forecast, the CBI believes business investment will be flat next year and fall in 2018 as companies wait for the outcome of the EU negotiations before investing. To counter that, the business lobby group wants Philip Hammond, the Chancellor, to announce extra public investment in infrastructure in his Autumn Statement later this month.

Meanwhile strong manufacturing numbers have backed up this trend. Factory output fell by 1pc in the three months after the referendum, but a new survey from IHS Markit indicates the sector has grown strongly again in September and October. Its purchasing managers index stood at 54.3 in October, when any figure above 50 indicates output is growing.

That is down a touch from 55.5 in September but still solidly above the long-term average of 51.5.

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International Commercial InvestmentEconomy to grow faster than expected into 2017 as UK sustains post-Brexit performance

London’s Property Prices Could Double by 2030, JLL Predicts

by International Commercial Investment on October 27, 2016

Source: Mansion Global

Even with the U.K.’s upcoming departure from the European Union, property buyers in London may be able to double their investment over the next 15 years, according to a research released by global real estate consultancy JLL earlier this week.

Using Oxford Economics data based on a “hard” Brexit (meaning the U.K. would leave the E.U. single market altogether, reverting to World Trade Organization rules), JLL said that London’s real estate investment is expected to generate an overall yearly return between 4% and 7%.

And this is a relatively conservative estimate, said Nick Whitten, JLL’s residential research associate director.

“JLL figures show that house price growth in London over the past 35 years has averaged 8% per annum through a period that included three recessions,” he said.

JLL analyzed the forecasted average house price gain in each London borough from 2016 to 2030 to show the winners over the medium-long term.

There is the potential to double the value of a home in some parts of London by 2030, most notably Waltham Forest, Newham and Haringey in the east of London, where prices are projected to rise by 100%, 94% and 91% respectively (See the map below for more price projections).

“The east of London is expected to be a significant driver in terms of the future economic growth of London driven by the rise of the likes of Silicon Roundabout in Old Street, the Queen Elizabeth Olympic Park and the new Crossrail east-west commuter railway,” said Mr. Whitten.

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International Commercial InvestmentLondon’s Property Prices Could Double by 2030, JLL Predicts

Britain will be fastest growing G7 economy this year, says IMF

by International Commercial Investment on October 5, 2016

Source: The Guardian

The International Monetary Fund has predicted the UK will be the fastest growing of the G7 leading industrial countries this year and accepted that its prediction of a post-Brexit-vote financial crash has proved to be overly pessimistic.

But while the Washington-based IMF said Britain would have a “soft landing” in 2016 with growth of 1.8%, it stuck to its view that the economy would eventually suffer from the shock EU referendum result and said expansion next year would be just 1.1% – lower than it expected in the immediate aftermath of the Brexit vote.

Maurice Obstfeld, the IMF’s economic counsellor, said the fund had been right to warn about the risks of Brexit but added: “We are looking at a soft landing for 2016. We are happy about the outcome.”

Looking further ahead, Obstfeld said the uncertainty about the divorce settlement between Britain and the EU would make businesses more cautious and warned that the fall in sterling – which hit a 31-year low on Tuesday – would hit living standards.

The pound sank to $1.274, its lowest level since June 1985. However, the decline provided another boost to companies with sales in dollars and the FTSE-100 soared 90 points to 7074 – its highest close since April 2015’s record high of 7104. The FTSE 100 index is now up nearly 28% since February and has climbed 12% since referendum day on 23 June.

Philip Hammond, the chancellor, said the UK economy had shown its resilience since the referendum but there was no room for complacency.

“There are still challenges ahead, as the IMF note in their estimate for growth in 2017. That is why I stand ready to take action to support our economy through any period of turbulence and will continue to pursue the long-term goals of fiscal consolidation and improved productivity.”

The IMF used its half-yearly world economic outlook (WEO) to warn not just about the impact of the referendum result on the UK and the wider eurozone economies, as well as the weak growth and uneven division of the fruits of growth that caused 52% of those who votedto end Britain’s 43-year membership of the EU.

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International Commercial InvestmentBritain will be fastest growing G7 economy this year, says IMF

Construction and export figures fuel hopes UK economy is growing

by International Commercial Investment on September 15, 2016

Source: The Guardian

Fears of a post-referendum recession have receded further after a rise in exports and a better month for the struggling construction industry buoyed hopes that the UK economy has continue to grow since 23 June.

As the pound tumbled following the Brexit vote, goods exports from the UK to other countries rose 3.4% between June and July. Exports to the EU, made cheaper by the pound’s decline, rose 9.1%, according to official figures. It was the biggest rise in EU exports since October 2010.

In a separate release the Office for National Statistics (ONS) said construction output stabilised in July, defying expectations among economists for another drop. Construction companies also enjoyed the biggest pick-up in orders for three years in the three months leading up to the referendum.
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The ONS said a rise in exports and drop in imports in July helped narrow the UK’s goods trade deficit with the rest of the world to £11.8bn in July from £12.9bn in June, broadly in line with expectations in a Reuters poll of economists.

There was also a narrowing in the deficit on the trade in goods and services to £4.5bn from £5.6bn in June. That gap is smaller thanks to the UK consistently running a surplus in trade in services – an area covering businesses such as financial and legal services – which helps make up some of the trade deficit in goods.

Britain’s international trade secretary, Liam Fox, said: “This data is very encouraging as it shows a major boost for exporters post referendum. However, while these statistics are highly encouraging we need to wait for further trade data to determine whether this is a clear trend.”

Economists have been revising up their gloomy predictions for the UK economy in recent days as news as more positive data rolls in. Consumer spending appears to have held up well and surveys suggest manufacturing and services companies enjoyed a rebound in activity in August following an initial post-referendum slump in July.

Howard Archer, economist at the consultancy IHS Global Insight, said the improved trade performance in July lifted hopes it would make a positive contribution to third-quarter GDP.

“Decent news for UK third-quarter growth prospects as the trade deficit narrowed markedly in July helped by improved exports, and construction output defied expectations of a drop in output,” he said.

Based on recent business surveys published by financial data company Markit, the economy looks likely to have grown 0.1% in the third quarter. That would represent a sharp slowdown from 0.6% in the second quarter.

But Archer also noted the ONS’s warning not to read too much into one month’s data. In its report on trade, the ONS said: “As monthly data can often be volatile, it is unclear whether this is an impact of the depreciation of sterling and it is necessary to look at the trend over the next few months to get a clearer picture.”

On construction, the ONS said: “There is very little anecdotal evidence at present to suggest that the referendum has had an impact on output. You should note that we always warn against overly interpreting one month’s figures.”

Paul Hollingsworth at the consultancy Capital Economics echoed those warnings.

“While we would caution against reading too much into any one month’s figures at the best of times, this is particularly true of trade and construction figures.

“Indeed, the survey evidence suggests that the near-term outlook for construction is poor … The near-term outlook for trade on the other hand looks a little better … The upshot is that while it is still early days, the latest figures give us little reason to alter our view that the immediate impact of the vote to leave the EU will be less severe than many had anticipated.”

Chiming with recent business surveys showing companies are having to pay more for imported materials because of a weaker pound, the ONS trade release showed import prices grew by 3.2% on June 2016.
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Suren Thiru, head of economics at the British Chambers of Commerce, said the UK’s near-term trade prospects would continue to be largely determined by how much the benefits of lower sterling for exporters are offset by higher input costs.

“Over the long-term, the UK’s trade position will be driven by how successful the government is in delivering the best possible terms of trade for the future, both with the EU and with markets further afield,” added Thiru.

The ONS construction figures showed output was flat in July, better than economists’ expectations for a 0.8% drop. It compared with a 1.0% drop in June. Measured against a year ago, output was down 1.5%, the biggest drop since April 2013 but above expectations for a 3.2% drop in a Reuters poll of economists.

Construction orders rose 8.6% in the second quarter compared with the first quarter, primarily boosted by housing.

The figures will reassure Bank of England policymakers meeting to set interest rates next week that they can afford to leave policy unchanged for now.

Interest rates were cut to a new record low of 0.25% in August and governor Mark Carney hinted another cut to take rates close to zero could follow before the end of the year. But economists expect the monetary policy committee to wait until November to cut again.

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International Commercial InvestmentConstruction and export figures fuel hopes UK economy is growing

Pound jumps as UK manufacturing activity rebounds

by International Commercial Investment on September 2, 2016

Source: BBC News

The value of the pound has jumped after a survey indicated the UK’s manufacturing sector rebounded sharply in August.

The Markit/CIPS purchasing managers’ index (PMI) for the sector rose to 53.3 in August from July’s figure of 48.3. A figure above 50 indicates expansion.

The weakening of the pound following the Brexit vote boosted exports, the survey found.

However, it also indicated that the weak pound had pushed up firms’ costs.

A weakening of the pound makes UK goods cheaper for overseas buyers, but increases the cost of goods imported into the UK.

Since the Brexit vote, the pound has fallen in value by more than 10% against both the US dollar and the euro.

Following the release of the latest PMI survey, the pound jumped by 1%, more than a cent, against the dollar, to $1.33 before falling back slightly. Against the euro, the pound was 0.6% higher at just under €1.19.
‘Marked recovery’

Markit said the month-on-month increase in the PMI level was the joint largest in the survey’s 25-year history.

“The August PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn that followed the EU referendum,” said Rob Dobson, senior economist at IHS Markit.

“The domestic market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business from the US, Europe, Scandinavia, Middle East and Asia,” he added.

Mr Dobson also said that inflation was “raising its ugly head”.

“Rates of increase in input prices and output charges both hit five-year highs, which manufacturers placed squarely at the door of the cost impact of sterling on import prices,” he said.

The latest PMI survey chimes with last week’s CBI survey, which showed that export orders were rising at their fastest rate in two years.

At the time, the July PMI figure was taken as immediate evidence of an impending downturn, following June’s referendum vote in favour of the UK leaving the EU.

It was one of the pieces of evidence that contributed to the Bank of England’s recent decision to cut its interest rate to 0.25%.
‘Robust data’

But Laith Khalaf, from the investment firm Hargreaves Lansdown, said the latest PMI figures now called the Bank’s decision into question.

“It certainly seems that companies and consumers alike are carrying on with business as usual now the referendum is disappearing into the rear view mirror,” he said.

“There’s still a long way to go until Britain leaves the EU, and in the meantime, businesses still need to make money, so they can’t just sit on their hands.

“However, the gathering pile of robust economic data might start to dissuade policymakers from any further monetary easing,” he added.

Next week, another PMI survey, of the much larger services sector, will provide another snapshot of the state of the UK economy.

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International Commercial InvestmentPound jumps as UK manufacturing activity rebounds

House price leap defies fears of referendum downturn in property market

by International Commercial Investment on August 31, 2016

Source: Evening Standard

An unexpected rise in house prices in August and an upturn in consumer confidence today added to the sense that the Brexit vote at the end of June has yet to derail the UK economy.

House prices rose 0.6% this month, according to Nationwide, when analysts had been predicting a fall of between 1% and 2%. That pushed the annual increase from 5.2% in July to 5.6% in August.

Consumer confidence, which suffered its biggest drop for 26 years in July, recovered somewhat in August with GfK’s barometer rising five points from -12 to -7.

Official data this month have already shown strong retail sales and a rise in employment since the Brexit vote.

But the Bank of England reported this week that the number of mortgage approvals made to home buyers fell to its lowest level for 18 months in July, in a sign that the vote to leave the EU had a cooling effect on the housing market.

Robert Gardner, Nationwide’s chief economist, said: “The pick-up in price growth is somewhat at odds with signs that housing market activity has slowed in recent months.

“However, the decline in demand appears to have been matched by weakness on the supply side of the market. Surveyors report that instructions to sell have also declined and the stock of properties on the market remains close to 30-year lows.

“This helps to explain why the pace of house price growth has remained broadly stable.”

Gardner said the Bank of England’s decision to lower the base rate to 0.25% will provide an immediate benefit to many mortgage borrowers, who will see their repayments become cheaper.

However, he added, “for most the boost will be fairly modest”, with the typical saving from the base rate cut being around £15 per month.

“It’s important not to hang too much significance on one or two bits of data because it’s still very early days,” said Laith Khalaf, analyst at Hargreaves Lansdown. “Judging the economic impact of Brexit right now is a bit like predicting the winner of the Premier League based on who’s at the top of the table after the first couple of games.”

Howard Archer, economist at IHS Global Insight, said: “Housing market activity is likely to be limited over the coming months and prices will weaken as prolonged uncertainty following the UK’s vote to leave the EU constrains consumer confidence and willingness to engage in major transactions, and also hampers economic activity.”

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International Commercial InvestmentHouse price leap defies fears of referendum downturn in property market

U.K. Foreign Investment Sets Record, Boosted by Emerging Markets

by International Commercial Investment on August 29, 2016

Source: Bloomberg

A record number of overseas investments were made in the U.K. in the 2015-16 financial year, buoyed by a surge from emerging markets, making the country Europe’s most popular for external financiers.

Total projects funded by foreign direct investment rose 11 percent to 2,213, the Department for International Trade said in a statement Tuesday. FDI created or protected 116,000 jobs including in life sciences, financial and professional services, and energy and infrastructure.

“We’ve broadened our reach with emerging markets across the world to cement our position as the number one destination in Europe for investment,’’ said International Trade Secretary Liam Fox, who called the figures a “continued vote of confidence’’ in the U.K.

Investors came from 79 countries, a record for one year. Projects funded from Latin America more than tripled, up 240 percent, and East European investment increased 131 percent.

The U.S. remained the U.K.’s largest source of outside financing, with 570 projects, followed by China, which accounted for 156, and India with 140.
Brexit Factor

The statistics, through April, show investors weren’t deterred by the possibility of Britain leaving the European Union. Time will tell if post-Brexit vote uncertainty has changed matters.

“As Britain approaches a time of economic change, we must continue to welcome investors that are willing to make a sustained, long-term commitment all across the country,’’ said Adam Marshall, director general of the British Chambers of Commerce, which represents U.K. business.

The U.K. is Europe’s most popular destination for foreign investment, according to the trade department’s data, which was drawn from Ernst & Young’s U.K. Attractiveness Survey, the Financial Times’ foreign direct investment report 2016 and the Organization for Economic Co-operation and Development’s FDI in Figures.

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International Commercial InvestmentU.K. Foreign Investment Sets Record, Boosted by Emerging Markets

UK economy stays resilient despite shock of EU exit

by International Commercial Investment on August 28, 2016

Source: The Telegraph

The UK economy is bouncing back after the Brexit vote, a string of surveys will show this week, in further evidence that optimism is returning after the initial shock of the result.

Surveys of manufacturing and construction output for August are expected to show a partial recovery in activity following July’s massive drop, reducing the chance that the UK will fall into recession at the turn of the year.

A closely watched barometer of consumer confidence is also expected to show sentiment is on the rise following the biggest drop in optimism since 1990 in July, according to economists.

A record deterioration in the Markit/IHS purchasing managers’ indices between June and July helped to seal the Bank of England’s decision to cut interest rates to a fresh low of 0.25pc and unveil a £170bn stimulus package designed to prevent a deep downturn.

However, early indicators, including official retail sales data and a partial snapshot of the jobs market, suggest the UK economy remains resilient.

Economists expect Markit’s gauge of manufacturing activity to rise to 49 in August, after dropping to a three-year low of 48.2 in July.

While still below the 50 level that signals growth, economists said the data pointed to a slowdown rather than a collapse in activity.

Several analysts expect the manufacturing sector to eke out growth in August, as exporters benefit from a weaker pound.

Alan Clarke, an economist at Scotiabank, said: “Many businesses are realising that the pessimism has been overdone and the vote to leave the EU hasn’t caused the sky to fall in.”

GfK’s latest consumer confidence survey is also expected to rise, following July’s dramatic fall – the biggest in 26 years.

Despite the drop, July’s survey suggested Britons were not yet squirrelling away their cash in anticipation of a downturn.

The steady recovery is in contrast to warnings by the Treasury that voting to leave the EU would plunge the UK into a year-long recession.

Analysts at Oxford Economics said the recent run of indicators, including surveys by the Confederation of British Industry (CBI) that show sales in retail and manufacturing remain robust, “suggest that the economy has remained resilient to post-referendum uncertainty”.

Andrew Goodwin, lead economist at Oxford Economics, said: “Should this pattern be mirrored in this week’s high profile GfK and PMI surveys, our forecast of zero growth for the third quarter may start to look too low.”

Most economists still expect growth to slow markedly in the coming months. Brian Hilliard, chief UK economist at Societe Generale, warned that the bigger concern for policymakers was a prolonged period of slow growth, as he described the Bank of England’s forecast of 1.8pc in 2018 as too optimistic.

He said: “Recent surveys from the CBI and the Lloyds Business barometer point to quite a strong bounce in the PMI [but] this is really the first round only.

“What I think we are going to see is a succession of shocks which will keep growth very, very weak.”

Economists are even more worried about the construction industry, with Markit’s July poll showing a steep downturn led by commercial property.

Markus Stadlmann, chief investment officer at Lloyds Private Banking, said that while he remained optimistic about the UK’s economic prospects, Lloyds had slashed its commercial property investments.

“If you exclude rental income, we don’t expect any additional price return for the next couple of years – and that was even before the referendum. Now it’s even more challenging.

“Why would international investors return readily? There might be bargain hunters off the back of the weaker currency, but that’s not what the market lives on.

“It needs continuous, broad-based investment, and I don’t think foreign institutional investors have an easy time justifying real estate investment in the UK at the moment,” he said.

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International Commercial InvestmentUK economy stays resilient despite shock of EU exit