BritOUT: A Period of Economic Transition
The triggering of Article 50 set in motion four years of tumultuous policy and tenuous negotiation. The 2016 referendum was to become the epitome of a democratic turning point in society as the public decided to leave the European Union. In turn, opting out of various laws, incentives, and policies. The 31st of December 2020 marked the beginning of an era where the UK will effectively retain complete autonomy on all political, economic, social, and various other elements of public policy decisions. The question for the past four years has been one of how the UK would exit, with the recent news of a confirmed trade deal we now know that the UK will continue a trading relationship with the EU. The question now is what exactly this entails and what this will mean for the long-term prospects for the UK’s economy.
The EU-UK Trade and Cooperation Agreement provides for trade in goods and services, digital trade, intellectual property, public procurement, aviation and road transport, energy, fisheries, social security coordination, law enforcement and judicial cooperation in criminal matters, and participation in Union matters. This may seem extensive on the surface, however, this will by no means match the level of economic or political integration that existed while the UK was an EU member state, it merely provides a basis for preserving preferential long-lasting relations.
What does this new economic and social partnership between the EU and UK change?
The provision for zero tariffs and quotas on goods is much the same, the essential distinction to this is the requirement that all goods comply with the appropriate rules of origin. This is to determine where the goods originate, including materials and manufacture, not from where they have been shipped. For more specific information relating to these, the UK government website contains the Generalised Scheme of Preferences, sufficiently worked or processed goods made from materials of various origin, and the specific rule of origin requirements for trade by country.
The UK and EU have also committed their desire to ensure what they referred to as a ´level playing field´ by maintaining high levels of protection in crucial sectors such as the environment in the fight against climate change, carbon pricing, social and labour rights, tax transparency and State aid with effective domestic enforcement, a binding dispute settlement mechanism and the possibility for both parties to take remedial measures.
A new framework will be formulated to ensure the joint management of fish stocks in the EU and the UK waters. As widely publicised, the UK’s deal with the EU will allow British fishing activities in international water to continue and develop, whilst also safeguarding the European fishing community and preserving natural resources.
As for transport, the agreement provides for the continuation of sustainable, road, rail, air, and maritime connectivity. Provisions have been included to ensure that competition between the EU and the UK operators is engaged on a ‘level playing field’, securing the rights of passengers and workers, and ensuring the safety of all involved, remains paramount.
During the Brexit transition the EU has been working on their renewable and sustainable energy goals, this agreement ensures a fair platform for trading and interconnectivity with guarantees for open competition including safety standards for offshore and the production of renewable energy.
In terms of the social security aspects, the agreement aims at ensuring a number of rights for EU and UK citizens and nationals who have been and intend to continue or begin, working, living, or travelling within the respective countries as of the 1st of January 2021.
Conclusively, the agreement enables the UK to continue to participate in a number of flagship EU programmes for the next six years, such as Horizon Europe, provided that the UK makes a financial contribution.
With this in mind, what can we expect for the future of the UK’s economy?
According to financial analysts at the PWC, the UK could be the fastest-growing G7 economy up to 2050, with an average annual growth of 1.9%, maintaining a position in the top-10 global economies. The uptake after the pandemic is expected to double the value of the world economy by 2042, increasing at an average rate of 2.5% up to 2050.
The UK’s long-term economic growth could outpace leading EU countries such as Germany, France, and Italy. As expected, there will be some short-term fallout from the immediate effects of Brexit, however, the far-sighted prospects are looking very positive as the UK’s position is sustained by its projected larger working-age share of the population than in most other advanced economies. However, the PWC has cautioned that these projections are based entirely on the reliance of the UK continuing to employ talented individuals from overseas, and participating in the forefront of international schemes and incentives to progress the efforts on renewable and sustainable energy and other important developments.
In spite of the country’s decision to leave the European Union, in order for the UK to maintain a position in the top-10 global economies, it must embrace internationalisation and globalisation, promoting and contributing the efforts towards tackling climate change and sustainable development. Brexit may be a movement towards increasing the influence and reach of the UK both economically and politically but it must not become a movement against diversification, financial advisors warn. For the UK to thrive from this fundamental change, it must embrace the new opportunities that the recently granted distinction from the European Union has provided.
January 11, 2021
Will businesses reduce their office footprint in 2021?
Paul Howells, CEO of investment and property development company Accumulate Capital, says the pandemic is causing businesses to look at offices and commercial property in a different way.
December 7, 2020
Reflecting on 2020
Accumulate Capital; The continued prosperity from investment in development finance – despite the economic challenges of this year – really does show its credibility as the wisest way to capitalise on the property market.
Accumulate Capital – November Update – Riverside Place, Kingston-upon-Thames
View our latest development update for Riverside Place in Kingston upon Thames, exclusively released here. Watch as months of planning and preparation begin to take shape as construction for this stunning new build remains perfectly on schedule.
Is the revitalisation of the housing market sustainable or will the price bubble burst?
Despite turbulence to the economy this year, activity has risen in the past few months as house price increases, especially in London and Yorkshire & The Humber, indicate a thriving market. According to research accumulated by Nationwide, house prices rose by 0.9% in September in a fairly even spread with the previously mentioned areas increasing by as much as 3% in the third quarter of this year. This strong price growth has been driven by high levels of competition and market activity. In fact, 76% of Surveyors in a recent RICS survey report a vast increase in new buyer enquiries, with a further 69% reporting an increasing level of instructions.
The release of the OTS recommendation to double the rates of capital gains tax could bolster further activity in the property market in the short-term, especially seen as these changes are not likely to take effect until the second half of 2021. However, this is not favourable news in the longer-term as it will potentially affect the profitability for returns on second home investments and align these more closely with income tax rates. We may also see an increase in the stringency of loan to value ratios and this could inhibit the capacity for market growth.
More favourably, according to Hometrack the first quarter of 2021 is set to record a property uplift, with 100,000 additional sales expected to complete before the end of the stamp duty deadline. Market analysis continues to look positive as UK house price growth rises to +3.5%, the highest for almost 3 years. Though demand has dipped slightly to below pre-Covid levels, likely a reflection of the latest lockdown, it still remains 34% higher than last year.
Taking all of this into consideration, are we likely to see a correction to house prices in 2021?
This has been a contentious topic with many leading analysts dissenting on whether recent data is indicative of an imminent housing market crash. The fundamental factors which are considered in these predictions are: the rate of economic growth and subsequently interest rates; the availability and affordability of homes and any movement to wages or income rates. Needless to say, all of these factors have been directly impacted by the consequences of the pandemic and thus, the extent of the economic fallout largely depends on how long it will take for society to return to a form of normalcy. The increased interest rates stem from the Treasury and the Bank of England’s attempt to stimulate the economy with expenditure and it is likely that this method of quantitative easing will continue until the pace of economic growth strengthens. A continuation of low-interest rates is favourable to the housing market as it ensures mortgage funding remains relatively cheap and this in turn keeps house prices high. The vastly greater demand to supply situation in the UK will also be a preventative factor of a housing crash. According to data collected from the ONS, for the UK to meet the demand, 300,00 new homes must be built each year and data from the past few years evidences a consistent and significant shortfall. Therefore, this is also a positive towards ensuring that house prices continue to accumulate capital and will not drop to an amount that would cause a market crash.
Although, all of the above will be directly affected by society’s ability to control and regulate the spread of Covid-19 and November 2020 has been a significantly dynamic month in this respect. The news of imminent distribution of an effective vaccination has already increased market sentiment, with many set to accumulate capital, as the end to the severe restrictions is within sight. The announcement of the extension of the furlough scheme until March 2021 is another round of welcome news as this may slow the rate of unemployment. The housing market has remained remarkably immune to the pitfalls caused by the pandemic, bolstered by the temporary stamp duty holiday and various income support schemes. The challenge is to manage the inevitable dip in the market when economic fallout from the pandemic catches up and the capability of the economy to facilitate this is where concern begins to set in. The longer the restrictions of the pandemic continue to slow economic growth, reduce income rates and create market valuation volatility the more likely it is that the housing market will suffer.
Moving forward as a company, Accumulate Capital continues to anticipate the most recent market trends and navigate these to ensure that we make the most of the resilience of the housing economy whilst it flourishes. Sentiment amongst our investors has seen a significant morale boost with the encouraging news announced towards the end of 2020. We are entering an investor’s market with low-interest rates set to continue into 2021 and optimism surrounding the likeliness of control of the virus to kickstart an economic recovery shortly after.
The inextricable link between E-Commerce growth and logistics demand
Arguably, the saving grace of deep lockdown came in the form of the availability and efficiency of online shopping. The movement favouring e-commerce, although catalysed by the circumstance surrounding the pandemic, has been steadily gaining traction for years. There are currently 45.36 million e-commerce users in the UK, with an additional 4.06 million users expected to be shopping online by 2021. In 2020 e-commerce sales will account for an astounding 27.5% of total retail sales and approach one-third by 2024.
In theory, logistics management is defined as the part of the supply chain process that plans, implements, and controls the efficient flow and storage of goods and services. This extends to include any related information from the initial manufacturing process to the point of purchase and then deliverance to the customer as per the expected timeline. Traditional logistical issues such as a lack of suitable storage capacity, or a temporary restriction on travel will likely be amplified by an e-commerce venture. The world has certainly experienced this conundrum in the past year as the closing of non-essential businesses placed significant infrastructural pressure on the efficacy of online shopping. Whilst e-commerce has been steadily increasing regardless, it is now embraced in a way which has vastly extended the marketplace. New concerns for companies have arisen as they must now manage their output demand with their ability to deliver products to customers.
This new-found emphasis on e-commerce has certainly placed the spotlight on one particular UK town: Doncaster. It’s affirmed status as a significant economic feeder and key player of the UK’s Northern Powerhouse, alongside its locational advantages, have certainly proved this theory of inextricability between a growing demand for online shopping and the logistic requirements to deliver, quite literally. Doncaster’s world-class reputation for its expertise in rail, engineering, aviation and advanced manufacturing presents a unique vantage point for industrial growth and development.
Annual investment into Doncaster currently generates approximately £90m and is estimated to exceed this in coming years due to the exponential growth of this market. It’s accessibility and connectivity nationally continue to attract companies and increase industrial growth in the area, creating an ever-increasing demand for a logistical hub. As e-commerce permanently changes the face of the retail sector, we are seeing an urgent need for commercial and industrial logistic units to facilitate the overwhelming output from online shopping.
In a strategic bid to further improve the area’s logistics capability, Doncaster has created its own inland port, iPort. The 337-acre industrial distribution park, by Junction 3 of the M18, is set to expand by an additional 6 million square foot after successfully securing planning permission. In addition to the 500 jobs already created from this move, it is projected that the completion of the iPort will create another 4,500 when fully operational. Furthermore, the iPort Rail Doncaster has received two esteemed awards and acclamation in recognition of its importance in the e-commerce market as more and more businesses are turning to rail freight distribution for its cost efficiency and sustainability advantages.
When discussing e-commerce, we must acknowledge the company which is globally recognised as the run-away market leader, Amazon. In 2010 the world’s leading entrepreneur, Jeff Bezos, recognised the significance of Doncaster as the UK ́s key logistical hub. Since then, Amazon have invested circa £500m in three fulfilment centres making Doncaster the UK’s largest town, one of only two locations globally, outside of the United States, where Amazon have more than two fulfilment centres in any one town or city. The region is only set to gain more popularity as we move into the contemporary era of e-commerce. The sheer size of Yorkshire, it’s ever-increasing market share and economic resilience consolidate the region as the centre of commercial logistics.
This is only set to gain popularity as we move into the contemporary era of e-commerce. The sheer size of Yorkshire, its ever-increasing market share and economic resilience prime the region to achieve its potential as the centre of commercial logistics.
Multiple Covid-19 vaccinations enter final stages
The arrival of the highly anticipated Covid-19 vaccination provides a morale boost for all, as three vaccines deliver excellent results in the final phase of clinical trials. The global front-runner being the Pfizer-BioNTech vaccine which in a recent test proved a 95% efficacy against the virus, with Moderna closely following at 94% and Sputnik marginally coming in third.
As of the 17th of November, the UK has placed an order for 5 million doses to be delivered as soon as possible, with distribution to be underway by mid-December. No doubt this is a nod towards the goal to ‘save Christmas’ by making visits to care-homes and household mixing viable over the holiday season.
In recent news, the Oxford AstraZeneca vaccine has produced some promising results in their phase two findings. It has been shown to produce a strong immunity response in adults from the elder, and most at risk, generation. As the vaccine moves into phase three, it will be tested to see whether it prevents people from developing the Covid-19 virus. The UK government have placed their faith in this vaccine, more than any other, with an order of 100 million doses as compared to 40 million of the Pfizer-BioNTech and 5 million of the Moderna. Perhaps, this is partially due to the Oxford vaccine´s more favourable storage and distribution capabilities. As it does not rely on strict temperature conditions to function, it will be easier to manufacture and distribute on a large scale. The interim data from their final phase trials have proven that this vaccine is highly effective at preventing people from developing Covid-19 symptoms.
According to Bloomberg, the publication of the positive preliminary results for the Pfizer and BioNTech vaccine caused a surge in share value and an increase in company trading by as much as 24% in a matter of hours. The effect was felt globally as more than £1.36 trillion was added to the value of the MSCI All Country World Index. A global trend which was reflected in our own statistics as a noticeable increase in trading took place shortly after the positive news earlier this month. It seems that the potential early distribution of this vaccine has provided a much-needed boost in morale to developers and investors alike.
The revitalisation of the economy created a positive chain effect as currency was lifted significantly for the first time since Brexit. Sterling currency strengthened almost immediately as there was a global increase in appetite for risk upon the positive news of progress in Pfizer´s vaccination trials. As word spread the UK stock market received a much-needed boost, the pound was raised by 0.5%, verse the US dollar, ten minutes after the announcement went public. A welcome increase as the nation still grapples with the challenges presented by the Brexit agreement deadline of the 31st of December 2020.
The UK’s commitment to the Oxford AstraZeneca vaccine means, if approved before Christmas, it will be available for wide-spread distribution early next year. In a matter of months, we could see a complete return to normalcy. These optimistic predictions come as a result of the encouraging biological response of tests undertaken from those with underlying health conditions and over 70 years of age. The spotlight is now shifting from medicine to logistical management as the government must organise the most efficient system for distributing the vaccine. It seems that we may yet see the end of Brexit and the Coronavirus pandemic in the near future.
FTSE winning streak snaps on economic recovery concerns
The FTSE 100 ended an eight-day winning streak, pulled lower by financial stocks and concerns about the pace of economic recovery after disappointing data.
The UK blue-chip index fell 30 points, or 0.5%, to 6,352, giving back some gains from a three-day surge that had lifted the stock market 8% higher after Monday’s coronavirus vaccine breakthrough.
Weaker-than-expected UK economic growth in September weighed on investors’ mood. Official data showed growth of just 1.1% in September, lower than the 1.5% expected, and down from 2.2% in August.
‘This shows us that the UK economy was starting to slow even before lockdown 2.0 as pent-up demand eased and the chancellor’s ‘Eat Out to Help Out’ scheme came to an end,’ said Fiona Cincotta, analyst at City Index.
‘Between record redundancies and signs of growth slowing in September, the outlook for the UK economy was showing signs of weakness even before lockdown 2.0 came into play. This doesn’t bode well for the coming months as conditions deteriorate further.’
Concerns mounting for UK’s economic recovery
Britain’s economy grew by a slower than expected 1.1% in September from August, lagging other rich nations as it struggled to recover from the shock of the pandemic even before the latest COVID-19 lockdown.
The slowdown in Thursday’s official data cemented expectations that the economy will shrink again as 2020 ends, with uncertainty about the Dec. 31 deadline for a post-Brexit European Union trade deal adding to the coronavirus drag.
Between July and September, gross domestic product grew by a quarterly record of 15.5%. But that failed to make up for its nearly 20% lockdown slump between April and June.
Analysts had expected the monthly growth rate to slow less sharply, to 1.5%.
The economy is being propped up by more than 200 billion pounds of emergency spending and tax cuts ordered by finance minister Rishi Sunak and the Bank of England’s 150 billion pound bond-buying QE programme.
Despite those efforts, Britain — which passed 50,000 coronavirus fatalities on Wednesday this week, Europe’s highest death toll — has suffered the biggest GDP drop among major economies listed by the Office for National Statistics.
Britain’s initial lockdown lasted longer than in other countries and hammered services firms which make up 80% of the economy.
GDP remained almost 10% smaller than at the end of 2019, twice as big as the falls in Italy, Germany and France and nearly three times the size of the U.S. drop, the ONS said.
Will Pfizer vaccine boost UK economy?
BoE Governor Andrew Bailey said there was still a “huge gap” in the economy but news of a potentially effective COVID-19 vaccine would help lift the uncertainty.
“It’s encouraging for individuals, it’s encouraging for businesses and it’s encouraging for the economy,” he told a Financial Times event on Thursday.
“I think we have to be cautious because obviously there’s still quite a way to go in terms of the trialling.”
Last week, before the news of the vaccine trials, the BoE said the world’s sixth-biggest economy was likely to shrink by a record 11% in 2020 before growing by just over 7% in 2021.
“Britain’s COVID crisis, and its recovery phase, will take far longer than many people first thought,” said James Smith, research director of the Resolution Foundation think-tank, urging Sunak not to start reversing his spending surge quickly.
Sunak said steps taken to restrict the spread of COVID-19 were likely to have slowed economic growth since September.
“Today’s figures show that our economy was recovering over the summer, but started to slow going into autumn,” he said. “The steps we’ve had to take since to halt the spread of the virus mean growth has likely slowed further since then.”
The BoE said last week that GDP could shrink by 2% in the October-December quarter.
Construction sector props up British economy
Although nearly every sector of commerce has been hit hard by the pandemic, construction has remained resilient. As other sectors recorded low growth in this week’s figures, it was revealed that construction grew by almost 3% in August, boosted by a post-lockdown housing market pickup and the Stamp Duty holiday.
Accumulate Capital has managed to successfully navigate the pandemic, maintaining our works schedules while ensuring our sites are fully compliant with government coronavirus regulations. We have opportunities for investment at grassroots level of our developments that will ensure you achieve market-leading returns.
To find out more about investment opportunities in development finance with Accumulate Capital, contact one of our advisers today.