Richard Pickering, Head of UK Research & Insight gives a personal view of the business and role of property in ‘New Europe’ , his weekly email update.
Inflation Inflating ONS figures for July revealed a modest rise in the level of inflation (CPI) from 0.5% (June) to 0.6% (July). This is largely attributed to the fall in the value of sterling, which now appears to be stabilising. Opinion remains divided over whether inflation will continue to push upwards towards the government’s target of 2%, or whether weaker sentiment and a lack of wage growth will maintain downward pressure on inflation over the coming months. Either way, it feels very unlikely that the BoE will find cause to reverse its recent monetary decisions in the short term.
Employing caution Defying expectations of weakening employment stats, the ONS data shows unemployment to be at its lowest level since the global financial crisis (4.9%), combined with a high (since records began in 1971) in the proportion of 16-64 year olds in employment (74.5%). This is certainly welcome, if slightly premature, news. The data covers the period to the end of June, and so largely ignores the post-referendum period. Also, the statistical limitations of the data mean that there could in fact have been a slight rise in unemployment. A bit too early to leap to conclusions…
Norway or Switzerland It transpires that Norway might not be too warm on the prospect of the UK joining the European Free Trade Association. Their European affairs minister is quoted as having reservations that the UK (10x the population of Norway) might dominate the small group. Whilst not without its issues, the EFTA route was considered by many to be the closest alternative to EU membership. With the prospect of Norway vetoing the UK’s membership, the City is now thought to be pushing for a Swiss style series of bilateral agreements. This ‘pick and mix’ type arrangement may create multi-tier access to the single market across different industries.
Pensioners, pensions and profits With the cut in base rates, and no end in sight to the lower-for-longer environment, those reliant on income from investments are feeling the pain. Those that have promised to pay defined income such as company pension schemes are similarly in trouble. For such companies the choice between addressing shortfalls and paying dividends to investors has been thrown into sharp relief. A study by Lane, Clark & Peacock shows that the 56 FTSE 100 companies with pension shortfalls paid out 25% more to investors last year than the amount of the shortfall. Calls for regulation will mount, but what will this do to the investability of UK companies?
Directors and partners A recent survey by the Institute of Directors suggested that just 5% of firms are considering making redundancies in the wake of Brexit. Not so in the legal profession it seems, following a study by Legal Week, which reveals that 82% of the 200 partners surveyed expect to make job cuts. Looking beyond the headline, only 19% expected ‘many’ redundancies. Similarly, some practice areas (regulatory, trade etc) are thought to be beneficiaries of the Brexit vote.
Lawyers and robots Lower costs combined with continuing EU access is strengthening the attractiveness of Dublin to law firms. The Lawyer reports that both Pinsent Masons and Eversheds are moving forward with plans to grow in the Irish capital, together with legal outsourcing firm Johnson Hana International. Those with a more radical outlook to automating processes should look to the example set by Baker & Hostetler, who have ‘recruited’ IBM’s artificial intelligence ‘Ross’ to work in their bankruptcy practice. The shape of things to come?
Retail records The ONS reports that (by value) retail sales for the month of July are up 1.6% on June, and 3.6% on the equivalent July 2015 figure. This is hard data from the post-referendum period, which seems to fly in the face of the waning confidence figures produced last month. Digging into the data: the seasonally adjusted weekly sales value is the highest it has been; the month-on-month in-store growth is at its highest rate since December 2013, and the annual growth in online sales in running at 16.7%. Wait for more signs of confidence vs reality.
More haste, less speed Of the central London office leasing transactions that we were tracking pre-referendum, approximately 8% have aborted, 31% signed and the balance of 61% remain under offer (by size). This covers a period of almost two months, and bear in mind that a number had been under offer for some time pre-vote. In the normal run of things we would expect a typical leasing transaction to take about three months to close, and so this seems to indicate that transactions are moving forward albeit at a slower pace, which would be understandable. However, given the lumpiness of the data, two large deals could on their own increase the closed percentage to 70% in a short space of time. One to watch over the coming month.