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Will Brexit leave UK economy in a lurch?

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UK economy

The UK economy is likely to witness better times, and emerge as one of the best performers in stock markets in 2019, says Fidelity’s Bill McQuaker. However, the manager of the Fidelity Multi-Asset Open range of funds said that medium term investors are not off the mark to tread with care.

On Thursday, FTSE 100 had the biggest one-day drop since the EU referendum poll, resulting a drop of 3.2% of 6,685 due to concerns that revolved around the vulnerability of ceasefire in US-China trade war. This might pose a threat to the UK economy.

Notwithstanding the political drama in the House of Commons on Tuesday, the UK stocks nosedived, with FTSE 100 dipping over 5% since the start of the week.

However, McQuaker is not worried about the mid-cap FTSE 250 outperforming its blue-chip counterpart, because he is confident that there are numerous aspects that could impact the UK stocks.

The UK economy is readying for a softer Brexit, as per McQuaker. Investors haven’t been showing a lot of interest in UK equities. This could be a blessing in disguise, for “if there is going to be a deterioration in market conditions, people won’t be selling the UK because they’ve sold out of it already,” he quipped.

If it actually goes the way McQuaker says it will, there will be some short-term upside to the Sterling. This could make the FTSE 250 outperform, as compared to the FTSE 100, as the latter is quite dependent on US dollar denominated revenues.

Talking about how Brexit would pan out in the next decade, he says, “When I look at the environment that I think we’re likely to face in the medium term, I’d say that’s where I get a bit more depressed, quite frankly.”

“We’re not going to get the benefits of staying in the EU, and we’re not going to get the benefits of Brexit,” McQuaker points out.

This is true indeed, for the world will not be interested in investing in a country that’s going to be in a limbo for the next 10 years. Does this mean Brexit will leave the UK economy in a lurch?

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Court Revives Walter Merricks’ Claims against MasterCard

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Mastercard

The Court of Appeal on Tuesday revived Walter Merricks’ claim, which was initially brought against the MasterCard Corporation on behalf of millions of consumers in the country. The court’s ruling stated that the Competition Appeal Tribunal had applied the wrong legal test in making its final decision against the claim made two years ago and thus they must reconsider the case.  

Merricks, former financial ombudsman, had claimed that around 46 million people in the country have paid higher prices while making purchases through a MasterCard. This was because of unlawfully imposed high card fees. Merricks asserted that the claim followed the European Commission’s decision of 2007, which stated that MasterCard’s interchange fee was in breach of competition law.

Thus, £14 billion damage claim was brought against the corporation as a legal action, on behalf of the people who claimed to be the victims. If it becomes successful, then every adult in the country would be liable for a payout of £300 from MasterCard.

The critics insisted that over the past few years, MasterCard has broken the law several times by imposing excessive card transaction charges, which has left its consumers in a total loss.

Representatives from MasterCard have continuously disagreed with the basis of the claim, and in response to the court’s ruling argued, “This decision is not a final ruling and the proposed claim is not approved to move forward; rather, the court has simply said a rehearing on certain issues should happen.”

While the revival of Walter Merricksrejected claim pleased everyone in the country, the firm said that it would seek permission to appeal against the ruling to the Supreme Court. Merricks’ solicitor Boris Bronfentrinker, from Quinn Emanuel Urquhart & Sullivan, called the court’s decision a “landmark day for all UK consumers that Mr Merricks seeks to represent”.

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MPs Ask Division of “Big Four” Firms for Better Quality Audits

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Big Four

Members of the Parliament have asked for the separation of the “big four” accountancy firms into multiple units after the collapse of Carillion and BHS. This demand is being made so that the future audit of any big company is not affected and the confidence remains in the “big four”.

However, the documentation of research by the Business, Energy and Industrial Strategy (BEIS) Committee has asked for “full structural break-up” of KPMG, Deloitte, PwC, and EY into audit and separate consultancy businesses.

As per the MPs, division of “big four” would be beneficial in managing the disagreement. It would also help in providing the “professional scepticism” required to furnish high quality audits. The final report on the structural break-up of “big four” will be provided soon by the Competition and Markets Authority (CMA).

The preliminary plan of the report consisted only of an operational split between audit and advisory work. The scheme also consisted of cross-checks on audits to increase its quality and competitiveness.

The BEIS Committee’s report has also increased pressure on the CMA by asking them to increase the frequency of audit rotations. This step is taken to avoid informal relationships between auditors and their clients.

Audits to check for material fraud were asked as well, after Grant Thornton, head of an accountancy firm said to the committee that the auditors do not check for fraud during the audits, post collapse of Patisserie Holdings.

BEIS Chairwoman, Rachel Reeves said “For the big firms, audits seem too often to be the route to milking the cash-cow of consultancy business. The client relationship, and the conflicts of interest which abound, undermine the professional scepticism needed to deliver reliable, high-quality audits. Splitting audit from non-audit business would be a big step to boosting the culture of challenge needed to deliver high-quality audits.”

She also said that “We must not wait for the next corporate collapse. Government and regulators need to get on and legislate to deliver these reforms and ensure that audits deliver what businesses, investors, pension-holders and the public expect.”

CBI’s deputy director general, Josh Hardie, said that the committee’s idea to break-up the “big four” was an action decided in haste.

He said, “It puts forward a heavy-handed solution rather than waiting for the evidence of the reviews investigating the state of the current market and future vision for audits….”

After listening to every side of the demand, it can be said that there is need for a better policy for the separation of the “big four.” This is necessary to make sure the separation does not affect either the corporate companies, the trust of public, and/or the confidence of the investor.

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Edward Bramson to be Kept Away from Barclays’ Board

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Edward Bramson

Barclays’ bosses in their recent deliberation asked shareholders to maintain distance from Edward Bramson also known as the ‘toxic’ corporate raider. The warning has come up in context to the board voting that is due to take place.

Barclays’ heads have been extremely concerned about the moves taken by Bramson to be a part of the board. It has been stated that he has been indulged in influencing and pushing investors at Barclays to vote for him in order for him to get a position in the board.

Barclays chairman John McFarlane has stressed that such a decision can be worrisome and asked investors to ensure that Bramson should be blocked from becoming a non-executive director for the sake of all shareholders.

As per stats, Edward Bramson controls 5.51 percent of Barclays’ stakes and is interested in slashing its prized investment. In order to address the concerns related to his intents, the Chairman is taking certain steps like warning the investors.

Chairman McFarlane, in order to address the concern, disclosed the case to the stakeholders in a strong letter to the investors. In his letter, he has openly addressed the issue of Bonus. As per his explanation, if Bramson succeeds in achieving his intended position, it would lead to a complicated Bonus structure that will further lead to Bramson procuring tens of millions of pounds in fees.

McFarlane said, “Mr Bramson would likely seek to undertake a new round of restructuring and review which, in our view, would significantly destabilise the group, impede progress and result in a destruction of shareholder value.

“The board believes that the interests of Mr Bramson are fundamentally misaligned with the interests of shareholders.”

He further explained that “Based on his track record, the board believes the presence of Mr Bramson on the board would be unnecessarily destabilising for management and the talent we employ more broadly.”

The chairman also warned about Bramson’s plan for cuts have already been dismissed because they are not in the interest of profit generation.

He also said that though Edward Bramson has the record of turning around failing business but his approach to this involves sacking of managers, cutting the staff which is not a solution but raises various operational problems. And this time he is eying Barclays.

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Uncertain Brexit Deal Propels Stressed Housing Market

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Brexit Deal

Last updated on March 21st, 2019

This month is undoubtedly the most crucial for Britain, which is due to leave the European Union anytime soon. In an already messed up decision, several unexpected and terrible circumstances have surfaced in the three years since the public referendum.

While the chaos only escalates, the uncertainties for the UK market are also soaring. Particularly, the housing market is in dismay due to the approaching Brexit deadline and no clarity over the deal.

The conflict between the Tory MPs and Prime Minister Theresa May over the twice-negotiated and defeated withdrawal agreement, is going through a series of votes in the Parliament. Recently, the MPs voted in favour of extending the Article 50 to the end of June, but the final decision depends on the unanimous vote of the EU member states.

As the Parliament has voted down the withdrawal agreement, a no-deal Brexit remains a default position in case no agreement is reached between Britain and the bloc. The vagueness of the outcome and the potential consequences of a no-deal, have left several real estate businesses and financial experts in a dilemma.

Last year in September, Bank of England governor Mark Carney raised a warning that leaving the union without a deal could lead house prices tumbling by a third. In February, he added that the UK’s growth would be ‘guaranteed’ to fall in the event of a no-deal Brexit.

House market experts analysed that since the Brexit vote in June 2016, the property prices did slug. The pattern also reflected seasonal changes, where the prices went up in spring and remain stagnate during summer, during both 2016 and 2017.

Besides, in the post-summer period of 2018 with Brexit deadline approaching, the house prices suffered a bigger dip. Statistics reveal that they went down to £230,630 in November from £232,797 in August. An year-on-year house price analysis also reflected that in the year after the referendum the rate of property prices growth dropped everywhere in the UK, except Scotland.

While the lawmakers are striving to strike the best possible deal before March 29, the prospects are much lower considering the feuds. Industry experts have highlighted that the Brexit is capable of having range of affects on the UK housing market, both before and after the exit.

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Erratic Brexit Negatively Impacts UK Manufacturing Output

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Last updated on March 20th, 2019

The growing uncertainties in the United Kingdom over the Brexit issue has not just disrupted the political landscape of the country, but also impacted the market and business. A recent monthly survey revealed that the continuous anarchy over Britain leaving the European Union has reflected a negative impact on the output of manufacturing firms.

The poll, conducted by the Confederation of British Industry (CBI) on 366 manufacturers, highlighted that the carmakers have suffered because of the ongoing situation, as their output dropped in February.

According to the statistics provided, over the last three months, 27 per cent of the firms increased productivity, while 20 per cent saw a downfall. In January, the balance of plus 16 points went down to plus seven. Moreover, the output volume growth also weakened in the three months to February.

While the order books fortified in the month, economists warned that the survey probably was being slow to apprehend a downturn in output manufacturing. The study revealed that the expansion was largely driven by chemicals, food, drink, and tobacco sub-sectors, while manufacturing of vehicles was a crucial route to growth.

The CBI explained that a weaker global economic momentum implies less demand for exports. However, the potential threat of a no-deal Brexit poses a risk to the prospect for manufacturers in the UK.

The CBI head of economic Intelligence, Anna Leach stated, “UK manufacturing activity has moderated at the same time as headwinds from Brexit uncertainty and a weaker global trading environment have grown.”

Calling this time crucial for Brexit negotiations to support the UK manufacturing industry, she said that “the clock is ticking quickly towards crisis point”. Leach urged that the politicians on the two sides should “come to agreement on the terms of a Brexit deal as soon as possible, to allow our manufacturers to continue to create, make and trade their goods with certainty.”

The chair of the CBI’s manufacturing council, Tom Crotty said, “We are now just weeks away from the very real prospect of a ‘no deal’ Brexit, which would be hugely damaging to manufacturers up and down the country. The political paralysis on Brexit must urgently give way to compromise and an acceptable deal being struck.”

It’s not just the manufacturing companies, but several other sectors that are bearing the adversities of the turmoil created by Brexit in the country. A survey conducted last week by the German DIHK industry association said that the firms in link with Britain are currently operating in less favourable business conditions.

With the chances of a no-deal Brexit increasing, many have asserted that the year might turn out worse for the businesses. Nearly 13 per cent of the DIHK survey respondents also stated their plans to shift toward Germany and other European Union countries because of Brexit. While the Britain is already suffering from the consequences of the idea of a Brexit, it is uncertain how things would turn after March 29, when the UK is due to leave the bloc.

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