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British Consumer Borrowing Hits a New Low amid Brexit Concerns



Consumer borrowing post brexit, British auto industry

Brexit and the impending impacts of not reaching a common solution as the deadline draws near, is raising some major market concerns for UK. Therefore, following the impact, British consumer borrowing fell to its slowest rate last month.

According to Bank of England, such a situation has occurred after more than three years, thrashing the new car sales down by about 5 percent. The trend of consumer spending has also been a major role player in Britain’s economy, which has seen faster-than expected growth, despite a rise in inflation.

The growth, now, according to the data collected on the year-on-year growth in unsecured consumer lending, showed the percentage fell to 7.7 percent in September from 8.2 percent in August. The figures also imply that the growth is at its weakest since June 2015.

“New consumer borrowing for car finance fell sharply, consistent with very weak car registration numbers in September, while other borrowing, such as personal loans and overdrafts, was robust,” the central bank said.

The Auto industry also reported a sharp decline in its numbers in September as new car registration dropped by 20.5 percent in the year. September is a month that usually witnesses a lot of sale because of a twice-yearly change in license plate numbers.

While, it is partly believable that such a major fall in the numbers is due to rising environmental concerns, which shows a pattern to-do-away with the diesel vehicles. However, the major reason for instability in market revolves around vicious circles of Brexit, and Theresa May’s inability to reach up on a focal point.

The numbers from the month of September do not lie and the weakened car sales also shows that consumers are cautious while borrowing, whereas lenders fear the falling credit growth.

The Bank of England has further warned that the credit growth will slow down in the month of October, following tightening of loan conditions by lenders, earlier this year.

Theresa May might have repeatedly spoken about market forces not getting affected, but the stats clearly show how uncertainty looms large in the market.


Brexit Deal: Causes and Effects on British Economy and Currency



Brexit Deal

The controversial Brexit Deal has become more of a challenge for the British economy. Boris Johnson, who was recently appointed as the prime minister, is more determined to take the UK out of the EU by October 31 with or without a Brexit deal. But the real deal here is that the entire country would indulge in a huge economic shock with the UK’s withdrawal from the EU.

Unlike the prime minister’s previous statements that the Brexit deal would result in “massive economic opportunity”, many independent economists claimed that the entire scenario would negatively impact the British economy. Economist and Governor of the Bank of England Mark Carney, also agreed to the fact that a no-deal Brexit would lead to an “instantaneous shock”.

Carney further added, “You actually have businesses that are no longer economic.”

For the first time in the last seven years, the UK economy, while revolving around the Brexit deal, shrunk in the second quarter.

Moreover, the gross domestic product also fell 0.2 percent in the three months to June. When looked on the first quarter, the output was boosted by British manufacturing companies, who ramped up the production to supply to the overseas customers.

One of the main reasons behind these were the fears of border disruption after a no-deal Brexit on March 29, which was the original date of the UK’s withdrawal from the EU. During the second quarter output, the carmakers’ shutting down their plants in April because of the Brexit turbulence led to the downfall.

It appears that the business services and finance throughout the country would stagnate in the near future.

Observing the existing downfall of Pound Sterling since the Brexit referendum, many political leaders have been making every possible effort, stopping Boris Johnson from pursuing a no-deal Brexit.

Since the 2016 Brexit referendum, the British currency has fallen 10 percent. Though it was relatively stable against the currencies of the UK’s trading partners for some time, it started sliding again in May post Theresa May’s plans of quitting from the prime minister’s office.

With Pound’s slowing down to seven percent in May, the analysts believe that it might lead to situations of inflation as many companies have become reluctant to commit to capital spending amid Brexit uncertainty. As a result, business investment fell throughout in 2018. Sudden surge in the first quarter resulted in huge decline in the second quarter.

The main area of concern is that the investments’ decision is poorly affecting the global trade that has lowered the growth rates. The persistent weakness in the UK productivity along with unemployment closing to a 45-year low at 3.9 percent has further contributed to the crisis amid delays of making Brexit deal a complete success.

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Britain’s Road to Brexit Jeopardizes Pound Sterling Value




As Britain treads on the path towards no-deal Brexit after the indications from Boris Johnson’s government, the Pound Sterling has reached an all time low of two years.

The Pound Sterling has reached a 28 months’ low and experienced a drop of more than 1 percent, reaching to the current value of $1.2230, the lowest ever since mid-March 2017. It also experienced a drop against the euro, reaching a value of €1.1004. As per analysts, the currency could further experience a downfall.

As only three months are left for the impending deadline of Brexit, pressure for delivering it seems to be mounting up on Boris Johnson’s cabinet. Earlier, Michael Gove the Chancellor of the Duchy of Lancaster and no-deal Brexit planning, said that the government “must operate on the assumption” that no-deal is a possibility. However, the Prime Minister seemed to separate himself from such comments.

As the currency reached an all-time low of two years, Boris Johnson pressed upon the claims that there are still chances, the EU might agree for a new withdrawal deal.

As the Pound Sterling experienced a drop, the analysts at ING Group began to express their stance and make speculations on future turn of events. Petr Krpata, a currency strategist of the organisation said that the Pound experienced a downfall when “the events over the weekend, where the current stance of the new government became clear.”

He said, “The market [is] awaking to the reality of a new UK government, its rather combative stance on the current EU-UK Brexit deal, and its open remarks on the rising probability of a no-deal Brexit.”

According to the Chairperson of Hedge Fund Currency Sale at Mizuho Bank, the market has also experienced a shift in the price as the chances for a no-deal Brexit happening has increased to 50 percent as compared to the previous 20 percent chances.

It is not for the first time, the Pound has seen a drop in the Premiership of Boris Johnson. The Pound has experienced a downfall of 1.8 percent from the time Boris Johnson unveiled his cabinet comprising of hard Brexiteers and claiming that Brexit will happen by October 31, with “no ifs or buts”.

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Uncertainty Over Brexit hits UK with Investment and Hiring Prospects



Uncertainty Over Brexit hits UK with Investment and Hiring Prospects

The financial uncertainties around Brexit are subject to deal or no deal of the agreement. Ever since the referendum in 2016, the UK firms have seen multiple falls. Therefore, as per the latest plan, they have planned to reduce investment and hiring, a survey of chief financial officers showed, Monday.

The survey conducted by Deloitte, a financial advisory firm, stated that as many as 83% of the CFOs believed that parting ways with the EU would hurt Britain’s going concern. Besides, only 4% believed that such a move was good, and taking risk could actually yield them rewards.

Britain’s economy opened on a high this year when companies were preparing to leave for the original deadline in March. However, the economy slumped after the deadline was delayed until October 31.

As per the surveys published last week, the British economy followed a downward trajectory in the second quarter. Further, England Governor Mark Carney also warned of the increasing risks from a no-deal Brexit and from the growing trade rifts worldwide.

As per the records, two thirds of the of the CFOs surveyed by Deloitte are likely to cut hiring in the next three years; as a result of Brexit, while some 47% firms are expected to reduce the capital spending.

Impact of Brexit on UK firms was also visible all throughout 2018, when House of Commons failed to register any progress on the deal. In fact, when British Prime Minister Theresa May suffered her greatest defeat in Commons, the investor’s confidence became really wobbly.

“Brexit uncertainty is crippling business investment. “We’re at risk of falling further behind our G7 competitors,” Rain Newton-Smith, the CBI’s chief economist, said.

Financial fallout looks on cards for Britain. While, May’s vow to deliver Brexit ended in disarray, not agreeing with her terms might now lead to an even worse situation. As it stands, Britain will soon know who their new leader will be, but what UK firms really need to know is, if Britain is falling out, or leaving the European Union with a deal at hand.

The survey conducted by Deloitte was formed on responses from 79 CFOs, including 489 from FTSE 3350 companies. It was conducted between June 12 to 28.

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Foreign Markets Experience Rise as Bank of England Holds off Interest Rate



Bank of England

On Thursday, the Bank of England (BoE) cautioned and alerted on the economic stance and growth for the UK. The officials said that while the economic stance is negating continuously, the financial advancement might reduce to zero in the second quarter of this year.

These speculations come amidst the ever-increasing risks to the economy of the country as it nears the fate of a no-deal Brexit and global trade tensions. The nine-member committee of BoE decided to confine the interest rates at 0.75 percent. They also voted unanimously to retain the stock of the UK government bond purchases at £435 billion.

Following such an announcement from the Central Bank, European Banks witnessed a rise as investors reacted to the decision of curbing interest rates by the Bank of England and the Federal Reserve.

The bank continued to press hard on the fact that if in case, Britain is able to evade a damaging no-deal Brexit, then the interests rates will increase “at a gradual pace and to a limited extent”. The central bank also brought attention towards the discontent felt inside the organisation on the fact that Britain would have a “smooth” Brexit with minimum disarray.

As per the BoE, Britain’s economy will experience no growth in the second quarter, even though they predicted that the economy would see a growth of 0.2 percent every quarter as foretold last month.

The Monetary Policy Committee of the Bank of England has regularly said that the growth or depreciation in the interest rates depends upon the no-deal Brexit, and the movement relies on the demand, supply and exchange rate.

Earlier, it came into notice that the British currency saw a depreciation of three percent in May and the delay on Brexit was considered to be the prime factor for this fall in the value.

In its policy statement, the Central Bank said, “Globally, trade tensions have intensified. Domestically, the perceived likelihood of a no-deal Brexit has risen. Trade concerns have contributed to volatility in global equity prices and corporate bond spreads, as well as falls in industrial metals prices.”

Many economists also commented on the stance of the Bank of England and the all-day development in the stock market.

ING economist James Smith said, “All things considered, it’s slightly more dovish than one might have expected. The fact they are saying the perceived risk of a no-deal Brexit is rising suggests that they ultimately might take a more cautious approach than the rhetoric implied.”

Similarly, the Capital Economics economist Thomas Pugh stated, “If there is a no deal then the MPC will probably quickly change its tune and support the economy by cutting interest rates.”

Whilst the MPC committee looks forward to a steady growth of two percent if there is a “smooth Brexit”, the future stance and policies of the Bank of England, in wake of increasing global tensions, might soon witness a change.

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Ford’s Bridgend Closure to affect employment rate in the UK




On Thursday, the American multinational automaker Ford announced to close its Bridgend plant in South Wales in 2020, due to the lowering demands for some of its automobile’s engines. The step taken by the company is a big challenge for its workers, as they risk losing their jobs with the closure.

Ford’s Bridgend engine plant, which is a manufacturing facility of Ford in Europe -selling automobiles and commercial vehicles, once provided innumerable jobs to the workers in the country. It also built around 2.7 million automotive engines in 2018. However, analysts have anticipated that its closing would make about 1,700 people jobless.  

As a turnaround of its European operations, Ford would promote closure of many other plants along with the discontinuation of loss-making vehicle lines. In the same context, due to lowering demands, Ford has decided to end its production of 1.5-litre petrol engine by February 2020.

The expected pre-tax amount to cover the closing of Bridgend plant is approximately 650 million US dollars. The move has attracted criticism from trade union that has largely rejected the idea of the closure. The members have blamed the company for involving such extreme measures that could adversely affect the lives of the workers. They united in an effort to stop the closure, whilst taking the matter to the Welsh Assembly.

In the past two years, there has been a continuous decline in the sales of Ford cars, which has further affected its output and investment throughout the Europe.

Observing the future disadvantages of Bridgend plant, considering the current situations, Ford’s Europe President Stuart Rowley said, “Changing customer demand and cost disadvantages, plus an absence of additional engine models for Bridgend going forward make the plant economically unsustainable in the years ahead.”

As a result, Ford is in process of making some profits in other countries to reverse the losses in deteriorating European markets.

People who have been working hard to produce hybrid technology and electric vehicle components alongside manufacturing of third party vehicles to identify new opportunities have not been successful.

Due to the declining demands, the Closure of Bridgend plant also brings in more confusion for other automobile companies. Jaguar Land Rover and Honda have claimed that approximately 9,000 jobs would be lost if they close their British Plant in 2021, depreciating car sales and employment rate in the country.

Closing of the Bridgend’s Ford plant is expected to bring further downfall to the sales of cars in the country. Amid the Brexit crisis, the automobile companies have feared that a no-deal Brexit would definitely bring tariffs and customs checks to the vehicles, engines, and components, which would further raise costs and investments amid the decreasing demands.

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