Bend Me, Shape Me
Dreamkillers Ireland scuppered England’s hopes of a second grand slam, but Eddie Jones’s back-to-back Six Nations winning rugby squad is still considered by many to be set for even greater success than Sir Clive Woodward’s 2003 World Cup heroes. Jones is already on top measured by consecutive Test victories, even matching New Zealand. Not bad when you consider the long injured list ahead of the recent campaign. Not for the first time, the rugby boss has attributed the team’s success to flexibility and adaptability – and sticking to his three-second rule: back on your feet immediately after a tackle or ruck.
Blindsided by Brexit, British business and its management will need to dust themselves down and embrace the Jones approach if they are to succeed in the face of challenges from currencies, inflation and other external factors in the coming months. Responsiveness, reinvention and resourcing will remain key to staying in the game.
Hammond invents the W-turn
Chancellor Philip Hammond has shown he can flex more than most. First there was his elastic interpretation of his party’s 2015 manifesto promise not to increase National Insurance contributions (NICs) for five years. After using his spring budget to hike Class 4 NICs for the self-employed from 9% to 11% to raise £2bn, within a week Spreadsheet Phil then U-turned for a second time, scrapping the move amid uproar from all corners. Combined with a dividend allowance cut from £5,000 to £2,000, the NIC move had been slammed as ‘anti-enterprise’.
Almost five million Britons are registered as self-employed, up by a third on 15 years ago. The country’s workforce is changing radically, both a response to economic hardship, as many lose and fail to regain employment, as well as an embrace of small business and entrepreneurialism. Longer term, some of these workers will seed SMEs, which already employ 60% of all private sector workers. These companies may turn out to be an increasingly important part of the UK economy as it stands further apart, in whatever form, from the European market.
Economic Outlook: Cloudy with a chance of curveballs
The Chancellor confirmed that the UK economy continues to perform relatively well and, with the next quarter marking the first anniversary of the Brexit vote, concerns of a collapse remain unfounded. The Office for Budget Responsibility (OBR) has increased its forecast for UK GDP growth in 2017 to 2% (compared to 1.4% forecast in November 2016), albeit followed by a slight slowdown in growth in the following two years. Employment is also forecast to continue to grow in each year, with the jobless total already at its lowest level in 11 years.
However, inflation continues to build in 2017, largely owing to weaker sterling, with the headline figure forecast to hit 2.4% this year and remaining above the Bank of England’s 2% target in both 2018 and 2019. Consequently, inflationary pressures on companies are likely to persist in the form of higher costs, while the OBR also expects resulting higher prices to slow the pace of consumer spending. On the plus side, the softer pound may yet bring its own green shoots in spring and summer, making the UK more attractive to overseas visitors and offsetting potential weakness in domestic consumer spending. The blanket of ‘Brexit uncertainty’ remains firmly draped over the collective telescope of Bank of England rate setters. Their reluctance to consider a base rate rise prompts economic commentators to rule out an increase until as far out as Q4 2019.
If the US Federal Reserve is still guessing the eventual shape of ‘Trumponomics’, extrapolating its effect on the UK economy is even harder. The only clear picture for our own policy makers is that the new President of the UK’s second largest export market will have a very different approach to trade negotiations from previous US governments.
Retailers head for therapy as shoppers begin to drop
Present indicators from the high street bode ill for consumer spending in the near term. UK retail sales fell in the month of February, according to the British Retail Consortium, with
non-food sales down for the first time since 2011 in the quarter to February, slipping by 0.4%. It was the first quarterly drop in this segment since November 2011, when UK unemployment ran higher than 8% in the aftermath of the financial crisis. Again, consumers appear to be are suspending intended purchases until economic uncertainty is removed. Analysts suggest the H2 2016 bounce in sales was based on purchases brought forward in anticipation of price rises. Visa UK says that by contrast, ‘experience’ spending on culture and leisure rose by 3.3% in February, but those areas are also slowing, prompting fears of a wider squeeze on consumer spending and the macroeconomic repercussions that brings.
Food inflation helped the grocery sector lift sales by 2.0% in the same three months, but supermarkets have highlighted a separate threat in April: the first business rates revaluation in eight years, which will mean retailers having to find an estimated extra £2.25bn in the period to 2022. While retail property watchers argue that changes could actually mean savings for the largest superstores, the new rates will undoubtedly impact smaller retail businesses and curb investment.
Housing market – held up by sticks, bricks or straw?
Will the UK’s chronic housing shortage allow house prices to continue as a beacon of growth amid post-Brexit lethargy, or is the party winding down? Halifax says prices in the three months to February were 1.7% higher than in the previous quarter; down from 2.3% in January. The annual rate of growth fell to 5.1% from January’s 5.7%, the lowest since July 2013. The major mortgage lender remains predictably confident, citing a plethora of appealing deals and rates, but it is still counting on the economy staying healthy. Bear in mind that the Budget brought no Stamp Duty cheer for first time buyers, while landlords are missing mortgage interest relief.
Agent JLL is more pessimistic, forecasting a 0.5pc rise in house prices nationally in 2017 and a 1pc increase in London. Not surprising, given lower affordability among owner-occupiers and weaker investment demand from overseas. London is inevitably a leading indicator and house building 'starts' in the capital London are forecast to 16,000 this year, almost 24,000 homes built in 2015.
