Predictably, Brexit Minister David Davis bowed to the EU’s first demand. The divorce bill first, only then can discussions on the ‘deal’ can begin. Businesses are going to have to get used to the unknown and with the government stumbling along following a disastrous election result, their weakness presents an opportunity for business leaders to be heard.
A softer, more considered Brexit which, as Mark Carney commented in Tuesday’s Mansion House speech, our negotiations with the EU need to be ‘innovative, co-operative and responsible’. The chancellor has also got his voice back. After being locked in a cupboard for the entire election campaign, Phillip Hammond also has a stronger hand. A hung parliament, perversely, may have some benefit.
The major industry bodies – the CBI, IoD, British Chambers of Commerce, the EEF (Manufacturers Organisation) and the Federation of Small Businesses – are starting to see a way to influence the Brexit debate. With a ‘business and economy first’ approach that guarantees the rights of EU citizens, has a sensible immigration policy and a longer transition period to avoid any ‘cliff edge’ scenarios seems a little more likely.
Time Businesses Shaped the Agenda
This is also a chance for business leaders to make their voices heard to the young, disillusioned voters who stuck crosses in droves for a political party that is essentially economically illiterate. With a £1.9tr budget deficit and a slightly wobbling credit rating Labours fanciful money tree would soon be pruned to its roots and the country virtually bankrupt.
So, perhaps the bigger worry is not how the opening rounds of Brexit talks pan out, but a growing socialist movement. With our PM like a punch-drunk boxer, lost for words, credibility and public opinion shot, a leadership challenge and potential election are both possible. A Labour government would not be good for business at a time it’s feeling fragile and until now, excluded.
There is however, cause for optimism. Whilst growth is forecast to be slightly down in 2018 to 1.4%, the UK trade gap is continuing to narrow and fuelled by a weaker pound, it is likely to make a more significant contribution to growth than monetary forecasters predict.
The flipside is inflation. Its currently at 2.9%, well above the Bank’s target of 2% and is expected to break 3% by the autumn. With rates held at rock bottom for the last decade, the vote of 5-3 is a signal to ‘be aware.’
When Can We Expect Rate to Rise?
According to the CBI and noises from the Bank of England, may see a rise in interest rates around the middle of next year, something we concur with.
Any marginal rate rise a year or so from now will be full on the Chancellor’s radar as he must address our own borrowing situation. In the short term, we need more money, about £122bn of it. Especially with the OBR pointing to a £58bn hole due to Brexit and a divorce bill that seems to be determined by the number of bottles of wine Jean Claude-Junker has consumed.
Amid the Gloom, There Should Be Positivity
It is also worth remembering the Chancellor’s Autumn Statement was a positive one for business. In addition to projects such as the Hinkley power station, a third runway at Heathrow and the finishing touches to a £14.8bn Crossrail project are being applied it will help boost our stagnant productivity.
His major announcements nine months ago were designed to send a message the UK is open for business and the fact he wasn’t allowed a stage during the election campaign was a huge mistake.
Positive messages like the £2.7bn that was assigned for new and affordable homes, along with further major investment to develop our infrastructure. With £1.1bn for local transport networks, a £1bn boost to our patchy digital networks and a further £1.8bn of Local Growth funding devolved to various English regions we all missing from a manifesto that hopefully went through the shredder first thing on 9th June.
To help a little more, there are also tip bits for business to look forward to. With corporation tax dropping to 17% by 2020 and £6.7bn set aside to reduce business rates which will benefit our SME’s. The big winners were businesses from the world of tomorrow – IT, biotech, robotics, research and development – with £23bn was set aside over the next five years to fund innovation.
Businesses are exporting more and the global economy is strong, helped by the resurgent emerging markets but according to the CEBR, SME’s are missing out on £141bn a year by not selling goods or services overseas. This is huge opportunity to be missing out on.
SME’s Need More Support
According to the ‘Reformed Business Funding Report ‘What Small Firms Want from Brexit’ – almost four-fifths (78%) of small firms have sought business support services over the last 12 months. It’s all very well shouting about the need to export globally but for the majority of UK businesses this is a leap into the unknown. Enterprise Nation, a national business network found that 76% of SME’s don’t export at all and 80% still have no plans to either.
Help may have arrived in the shape of Crawford Falconer, New Zealand’s former ambassador to the World Trade Organisation. Falconer was appointed as Britain’s chief trade negotiator last week. Known for a ballsy ‘can do’ mentality he believes that Brexit can provide a ‘huge strategic opportunity.’
His argument is that Britain has been sleeping at the WTO table for too long, allowing Brussels to take care of its business. If he can help strike a sensible bilateral trade agreement with the EU bloc, his real skill and wealth of global contacts could help open the door to a much bigger prize.
All of that will take time. In the short term whilst political instability reigns, it’s up to business leaders to take the bull by the horns and for funders like ourselves at CMF Capital to provide the investment that enables businesses to reach new markets, develop new products and export the skills that has made us a world leader.