White Paper #1 The Government last week launched its White Paper setting out its plans to leave the EU. The document is long on aspiration but can it be delivered? Aside from the rhetoric, the takeaways were as follows: (1) the Government is willing to retain a significant amount of our existing regulation (‘it makes no sense to start from scratch’); (2) there will be a strong push for a transitional period following the Article 50 timeline, ‘it is in no one’s interest for there to be a cliff edge’; (3) there will be further White Papers (dealing with matters such as the Great Repeal Bill); (4) A ‘dispute resolution scheme’ should replace the ECJ; (5) a closing admission that there are no guarantees of success (“We will ensure that our economic and other functions can continue, including by passing legislation as necessary to mitigate the effects of failing to reach a deal’).
Makers and Mackem The fall in sterling is not all bad news, particularly for those who produce domestically and export their products. PMI (services) data this month show the sixth consecutive monthly expansion of output. With some pointing to a re-balancing of the UK economy and reduction of the trade deficit (currently £4.5bn), which parts of the UK might benefit and why? A Centre for Cities report released this week provides food for thought. Perhaps expectedly, London accounts for the largest share (28%) of UK exports; however once adjusted for population, it is only fifth. The clear leader is then Sunderland (£41k per job; cars), followed by Worthing (£29k per job; pharma), with a massive (x10) spread to the bottom of the table (York). The North is dominated by export of goods (Hull = 90%), whereas the South (+ Edinburgh) are focused on services. Some cities are particularly exposed to exports to the EU (Exeter=70%) and it is these that will be watching the negotiations on EU tariffs most closely, as should investors in these locations.
Risky growth? Against many expectations, this week’s data on the UK economy are upbeat. The BoE real GDP growth for 2017 is estimated to be 2.0%, which is stronger than Germany (1.8%), France (1.3%), and Japan (1.5%). Consumer confidence is up 2 points (GfK) and public borrowing dropped 5% in December, which may yet mean that Philip Hammond will meet his targets this year. The trouble with reporting forecasts, is that a single data point doesn’t tell the whole story, nor are consensus forecasts often true means. We looked at 34 predictions for GDP growth in 2017 and, whereas the mean point estimates are undeniably down compared with previous years, the real insight is that the spread (standard deviation) has more than doubled since 2015. As this data underpins rent forecasts, one can see the elevated risk of getting the answer wrong (whether that be too positive or too negative).
Making the Link With low interest rates putting banking margins under pressure, the costs of the LINK network, and free ATMs in general, is coming under scrutiny. One option is for the 54,000 free cashpoints (77% of total) to start charging. But for how much longer will these machines be needed? Just under half of all transactions are still carried out with cash; however this is on the wane, with non-cash transaction rising at c.8% pa. Contactless technology (1 in 4 payments) has removed a major friction point, making card transactions quicker than cash. A cashpoint typically contributes a base rent of between £2,500 and £10,000 pa to the commercialisation budget of shopping centres.