Yet what does this mean for the wider business environment? Should it be added to the near constant stream of negative news flowing through the market, that’s busy predicting some form of economic armageddon for the nation post-Brexit (only days before the BBC was reporting 75,000 finance jobs to be ‘potentially’ lost in the wake of the referendum result). Or should we just file it away as another data point that’s generally suggestive of a more upbeat landscape?
It’s an interesting question, as it relates to the nation’s mood. Brexit we’re told, will be a source of disruption and negativity for British business. Yet this view doesn’t seem to fit with the reality around us. Certainly the clients I’m talking with remain buoyant about their short and medium term prospects. It’s the same with much of the economic data we’re presented with. For example, GDP data rose by 0.4% in July-September – an increase on the 0.3% growth recorded in the first two quarters of 2017. At the same time, British factory output is on track this year for its fastest growth since 2014 – with a stronger world economy offsetting uncertainty about future exports to the European Union.
Then there’s today’s announcement regarding growth in the UK services sector, which grew at the fastest rate for six months in October (the Purchasing Managers’ Index was up from 53.3 to 55.6, with any number above 50 indicating growth!) – helped by stronger order books and ‘resilient growth’. On top of that, the UK is now ranked seventh best place in the world for doing business, according to the World Bank’s annual report on competitiveness.
Turning that frown upside down
We therefore continue to live in a world of mixed messages, which doesn’t help me in the day job of financial recruitment, because as we all know a CFO likes nothing more than to bask in the calm waters of prolonged and predictable certainty. But in the absence of any positive assurances, what can we confidently predict for the remainder of the year – and can my clients enter 2018 with the same sense of optimism?
Putting aside my crystal ball for one minute, I would certainly point to some very encouraging signs. As already mentioned, the nation’s manufacturers continue to defy official statistics, with a number reporting booming outputs, orders, and exports on the back of a weak pound. The services sector has also remained buoyant, while the technology sector’s performance – with the digital economy growing at twice the rate of the wider economy – even attracted the plaudits of the PM who recently described the industry as a “great British success story”.
In fact such good news has been the same across many sectors, including telecommunications and media – and the ever-vibrant entrepreneurial SME market that is now contributing 47% of revenue to the UK economy. So no great uncertainty there, though of course certain sectors continue to struggle, particularly the broader energy and mining markets impacted by rising oil prices and legacy issues caused by chronic under investment.
Then came the general election result in June, which plunged Britain into political chaos just ten days before the government was due to begin the all-important Brexit negotiations. A hung parliament, and a hurried partnership with Northern Ireland’s DUP followed, and with them further expectations of gloom for the UK’s business prospects. The pound fell to $1.27, and a survey from the IoD showed that there had been a 34% drop in business confidence since May.
Yet as economic figures continue to show, reality is proving somewhat different to the world envisaged by the ever-present legions of naysayers. Growth continues, including the previously mentioned 0.4% for the second quarter that remains ahead (even if only slightly) of city expectations. Such news has even had the effect of raising sterling back to above $1.32 in recent weeks (even if the interest rate announcement sent them plunging back down to $1.30), while the Bank of England has now stated that the nation will avoid a recession in the wake of the referendum result – though interestingly this announcement came several months after they’d admitted to being unable (OK, so they used the word ‘unlikely’) to predict a future economic crisis!
A shrinking talent pool
Then there’s the job market. The potential flight of EU labour from our shores post-Brexit does of course represent an area of enormous risk for the UK economy. Certainly in financial markets, the nation has undoubtedly benefitted from immigration – and it’s now broadly recognised that a more diverse workforce is a better performing workforce. The key question therefore is if this were to end, what impact will have on UK businesses? The good news is that Britain remains a popular destination for foreign workers thanks to the country’s job opportunities, cultural diversity, and positive work-life balance. The bad news is that among EU workers already in the country, the picture is different – the majority of highly skilled staff from the continent now believe Britain is less attractive following the Brexit vote, and one-third of all non-British workers in the UK are looking to leave within the next five years (according to a recent Deloitte survey).
All of which means we’re probably not facing a ‘Brexodus’ just yet, but it is newsworthy that the number of EU citizens emigrating from Britain increased by a third to 122,000 over the past year – while net migration has fallen by a quarter during the same period. From a statistical perspective, I think it’s safe to say that such numbers will also include a fair number of senior business leaders, who consider their prospects better served on the mainland. And yes, the EU is posting better growth figures than the UK at present.
But is there a more immediate problem at work here? It’s still a fact that wage rises lag behind inflation, and while this is less problematic for senior positions it can factor into the wider nervousness surrounding Brexit. Then there are the efforts being made by EU countries to ‘seduce’ companies operating in the UK to relocate – with the Telegraph reporting a recent event where French politicians and business leaders hosted a dinner n Central London to do just that, with attendees listed from companies including Ernst & Young, KPMG, and Morgan Stanley.
Light at the end of the tunnel
The real drivers will no doubt emerge as more data becomes available, but central to all these developments will be the continuing ‘crisis of uncertainty’. Yet should we really be letting the ‘u’ word affect us so? We are after all a nation that resolutely weathered the storm created by the banking crisis. UK businesses have made great strides in enhancing their agility and flexibility, the unemployment rate is at a record low 4.3%, and we remain a net importer of EU goods and services. On top of this we can point to many of the FTSE100 sitting atop large cash reserves, which in turn could well mean a tranche of new investments and exciting opportunities.
That’s why I would suggest that as with any period of disruption, there will be the freedom for individuals – read: entrepreneurial business leaders – to make their mark, their career, and hopefully their fortune (does anybody else remember Black Wednesday in 1992, when George Soros pocketed $1billion by heavily shorting the pound?). And such opportunities could also offer an opportunity to finally address the UK’s perennial issue with productivity. Philip Hammond has himself declared a personal focus on helping boost Britain’s economic productivity as a way of “delivering higher-wage jobs and a better standard of living for people across the country”.
This is unsurprising, as with near full employment the emphasis will inevitably turn to the nation’s work rate as a measure of our future prospects. An attitude that resonates with the approach promoted by the American economist Paul Krugman in his quote: “productivity isn’t everything, but in the long run it is almost everything”. Words that are also easily understood by today’s CFOs, who now more than ever are under pressure to deliver more with less, and to empower the workforce to compete with their European competitors. This is of course possible, as the talent available in the UK should be seen as the envy of the world. Our task now is to marry this with a pragmatic and practical approach to succeeding in a post-Brexit environment – whatever the politicians throw at us.
Here’s fingers crossed.