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Crunch Time, Cabbies and Costs

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And we’re off  Today marks a pivotal event in the history of the UK. On the face of it, the long-awaited invocation of Article 50 commits the UK to withdraw from the EU by 29 March 2019, although a mutually agreed extension / transitional period remains a distinct possibility. There was a softening of language from Theresa May and her ministers after the official letter was handed to Donald Tusk today. This indicated both increasing pragmatism, and possible areas of compromise.  On trade there was a douse of realism as the government appears to be backing away from its threat to leave the EU without a deal, acknowledging it cannot “cherry pick” during Brexit talks.  on citizenship, rhetoric has become more conducive to negotiation (“we respect that” was May’s response to EU leaders’ assertions that Britain cannot stay in the single market without accepting free movement). Regarding the UK’s bill to the EU, there is an implied acceptance. Philip Hammond this morning refused to back the conclusion of a House of Lords report stating the UK had no legal obligation to pay the EU after it left. The markets were fairly subdued by lunchtime, likely a result of this more balanced language by ministers. But in the words of chief Brexit negotiator Michel Barnier, this is the first day of a “very long and difficult road”.

Sweet spot  The Deputy Governor for Monetary Policy last week described our economy as being in a ‘sweet spot’. In a speech to Imperial College, Ben Broadbent identified a coincidence of the weakened pound with a lack of actual substance (yet) for its depreciation, as a unique moment for exporters.  He attributes the likely principal cause of the fall in sterling to an expectation by the exchange markets of increasing costs of exporting, as opposed to weakening domestic demand. If our negotiations with the EU work out well, then he anticipates a rebound in sterling, although that would then restore the balance of export efficiency. The takeaway – now is a great time for exporters to make short-term investments, but longer-term decisions remain more opaque. A rebound in sterling would, in any event, clearly benefit those international investors who are choosing now as a time to buy into UK real estate.

Generation rent  An analysis by Bloomberg shows that more than half of people, in more than half of US cities, now rent as opposed to owning their own homes. Whereas there is a higher rate of home-ownership across the UK, London is a notable exception, largely owing to affordability and housing supply. There are quite wide disparities across Europe, between say Spain 78% and Germany 52%.  Whereas renting can be a financially rational decision in some markets, it brings with it societal issues. A Survation poll last year reported that renters were 75% more likely to experience serious anxiety and depression than home-owners; largely on account of instability, and unpredictability of rental costs.

British Summer Time  Last weekend the clocks went forward and we are now benefitting from an extra-hour of daylight in the evenings. A study by JPMorgan (2014) suggested that this coincides with a week of increased spending (0.9%), albeit one that is offset by a greater reduction in spending when the clocks go the other way (2.9%). Moving to British Summer Time is also associated with a decrease in accidents and an increase happiness. With outdoor working less prevalent than when the time zones were set, I for one (and presumably many others in the leisure and tourism industries) would support a move to permanent summer time, or even ‘double summer time’ (as has been proposed). Those in the North of scotland may well disagree.

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Richard Pickering, Head of UK Research & Insight.

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