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Erratic Brexit Negatively Impacts UK Manufacturing Output

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Brexit

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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Bank of England Announce Circulation of New Polymer £20 Note

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Bank of England

New polymer £20 note featuring artist Joseph Mallord William (JMW) Turner is all set to land up in your pockets rather soon. As per the Bank of England, the new currency will go into circulation to replace the most popular denomination in the nation.

At least 2bn have been printed, and the Bank has said that it expects the new note to be available in half of the nation via cash machines, within next 15 days. With new currency’s circulation now underway, the old notes are expected to discontinue. Unlike at the time of launch of the polymer £5 and £10 notes, no date is released for when the older paper-cotton notes will become obsolete.

The new currency in Scotland will be launched on February 27 by the Bank of Scotland and Clydesdale. The release will be followed by Royal Bank of Scotland on March 5. Meanwhile, banks in Northern Ireland will also change over to new notes in 2020, but no date has yet been made public.

The Bank of England said that given the huge popularity of polymer issues, it expects a large number of people to form queues outside its Threadneedle Street head office, as it opens on 9 a.m.

As informed, the note will feature Turner’s portrait in front of The Fighting Temeraire. The representation marks tribute to a ship that stood out in Nelson’s victory at the Battle of Trafalgar in 1805. Apart from that, the new polymer £20 note will have the signature of Sarah John — the Bank of England’s chief cashier since 2018 — for the first time.

The Bank of England Governor Mark Carney handpicked Tate Britain — largest collection of works by JMW Turner — to launch the new currency denomination. “I am delighted that the work of arguably the single most influential British artist of all time will now appear on another 2bn works of art – the new £20 notes that people can start using today,” he said.

The Bank of England said that their move also marks the biggest transition to polymer undertaken anywhere in the world. Additionally, for those who are wondering what is done with the old currency removed from circulation, the notes are either turned into compost or burned to generate electricity.

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Brexit Engulfs N26 Bank; 200,000 People Given Deadline to Claim Funds

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Brexit Engulfs N26 Bank; 200,000 People Given Deadline to Claim Funds

Under two weeks of Britain leaving the European Union, the German digital bank N26 pulled out of the UK, citing Brexit as the reason for its decision.

The bank which hosts more than 200,000 accounts has asked the account holders to withdraw their money in just two months, ending 15 April 2020. For anyone who fails to withdraw their money in time, would allow the funds to then be transferred to a holding account. The move comes just 18 months after the Berlin-based firm launched in the UK.

The bank had about a dozen employees in the UK, while the majority of its staff is employed in Germany. Following the dissolution of operations, the staff would be given new roles within the business.

The “challenger bank,” which has attracted investors including the US and Hong Kong billionaires Peter Thiel and Li Ka-shing, and the Chinese tech giant Tencent, was supposedly linked with boosting market, but instead Brexit made it fall out of contention.

Back in October, the bank even claimed that it was on due course to survive any instability and will continue post Brexit. Ironically, the posts have since been removed.

“The timings and framework outlined in the EU Withdrawal Agreement mean that the company will in due course be unable to operate in the UK with its European banking licence.”

As reported, the bank has more than 5 million customers in the European Union. And was cashing in on passporting rights that allowed it to make use of the German permit in the UK. According to the rules, British regulators have temporarily allowed the EU financial firms to continue operating after the transition period ends on 31 December 2020, giving three years to apply for a formal licence.

However, at the time of opening what it did not consider were the extra number of factors that could kick in with Brexit. One of them being the cost, which as per the Guardian, started to outweigh the advantages of staying in the UK market.

John Cronin, a financial analyst at the stockbroker Goodbody, said: “It’s quite a competitive market. N26 certainly made some inroads from a savings perspective. But the challenge is on the other side of the balance sheet in terms of monetizing deposits.”

N26 quitting the UK has ironically come only a day after shadow chancellor John McDonnell remarked that he feared there is a “risk” of firms moving from the city. Adding that the government needs to reach on mutual terms with the EU financial services.

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BoE Interest Threats Remain Despite Pound Sterling Soaring to New Heights

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December general elections that showcased the Conservative Party’s win, have finally woven some positive results for the British currency that has majorly seen downfalls due to the looming Brexit delays. On Wednesday, Pound Sterling crossed a key level against the Euro, a victory confirmed after the UK businesses increased substantially since the elections.

A recent survey has stated that the Pound-to-Euro exchange rate has crossed the 1.18 level. It became a clear indication of the fact that the businesses in the country were improving at an alarming rate and the similar situations, if continued, could lead to an investment revival.

In the light of continued Brexit delays, Pound Sterling has jumped and fallen innumerable times in the past, bringing in huge fluctuations in the businesses and economic growth of the country. And yet, the expectations from the government to come up with an appropriate solution to avoid the crisis have always remained.

The Pound to euro exchange rate that rocketed upwards yesterday, is so far the highest rate of the year, bringing in business and political optimism in the country. Well, the dramatic improvement approves of a significant pickup in the British economy in early 2020. It also brings in the implications that the Bank of England might opt to keep the interest rates unchanged at their January 30 meeting.

After the CBI’s quarterly business optimism rose to a near six-year high in January, the markets were doubtful that a BoE rate cut would occur by January end. The CBI tracker, which was previously seen at: -44 hit +23 in January.

Since, much of the January was a huge struggle for Pound Sterling, BoE policy makers’ decision to cut rates appeared as a warning to the markets that are eagerly waiting for Friday’s PMI surveys. It would ultimately decide their fate before BoE’s decision.  

Meanwhile, some believe that the surge in Pound Sterling came after Chancellor of the Exchequer Sajid Javid announced that the UK could secure a comprehensive EU trade deal this year. Javid commented: “There is a strong belief on both sides that it can be done. Both sides recognise that it’s a tight timetable, a lot needs to be done. It can be done. And it can be done for both goods where we want to see zero tariffs and zero quotas, and also services.”

The data from the past two days suggests that Pound Sterling has pushed above the tight 1.1655-1.1820 consolidation range, and has risen to test its highest levels of the year to date near 1.1848. Though there are chances that the British currency would rise further in the days ahead, the possibilities of a disappointing result cannot be neglected. If the latter be the case, the Bank of England will by all means cut the rates, that could add a heavier feel to the British currency over the short-term.

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Doubts Grow Over LGSS Law’s Future as Company Remarks ‘Uncertainty’

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LGss Law

A law firm setup by three councils to save money has raised an alarm over “uncertainties” that could risk its future prospects, after its account for 2018-19 posed a £1.2m loss.

LGSS Law – owned by Central Bedfordshire, Northamptonshire county and Cambridgeshire county councils – laid its foundation to offer a “new model” for public sector legal services. But witnessed an unexpected tide during the 2018-19 accounting year. The terms of revenue for the firm during the time fell from £8.7m to £7.8m, as losses increased from £300,000 to £1.2m.

Critics billed that fall in revenue was a sign of concern, however, an independent councilor questioned the terms of conclusion of outsourced services, while LGSS Law avowed that its finances have improved and it expects profits to show up for 2019-20.

In its annual growth, LGSS Law said: “The directors have a reasonable expectation that the company will continue in operational existence for the foreseeable future. However, the directors are aware of certain material uncertainties which may cause doubt on the company’s ability to continue as a going concern.”

As per the reports published last year by BBC, Northamptonshire had offered the firm a £1m overdraft. And the latest reports inform that Cambridgeshire has offered an extra £499,000 credit line.

The UK monetary sector had a rough 2018-2019, especially due to Brexit, which at a time looked to cause much bigger problems, than it is today. From cash flow, working capital requirement, the scale of operations and nature of business, every factor in the market came face-to-face with the unforeseen circumstances.

Consequently, for LGSS, whose business model continues to rely upon its shareholders in the firm in the form of loans, overdrafts and trade payable balances,” a lot of situations would have supposedly gone overboard.

Presently, the law firm is engaged in pursuing the higher-margin lines of business, increasing the efficiency of its free-earning lawyers and increasing its manpower in order to tackle the higher workload volumes.

Adam Zerny, leader of the independent group on Central Bedfordshire Council said, it is really a matter of concern to see losses at £1.2m, especially when the number represents 15 per cent of total company’s turnover.

“I have significant concerns about outsourcing to a third party which cannot be scrutinised in the same way a local authority can. I remain strongly opposed to legal services being outsourced, ” he added.

The clear picture of the firm is yet to be presented on various aspects, but of the overdrafts allocated by Northamptonshire County Council and Cambridgeshire, the firm has already used £950,000 and £375,000 respectively, to help the cash flow and working capital situation. Also, in order to find out how well has LGSS recovered from the loss situation last year, and if the overdraft facility has really helped or not, it is only advisable to wait for the 2019-20 accounts before taking any big investment decision.

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British Economy to Dominate France, Overhaul Germany Post Brexit

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British economy

The description of after-effects of Brexit deal has already taken a hold on every sphere in the country, with the Remainers calling it to be a huge threat to the British economy. The criticism surrounding continued Brexit delays has only led the citizens to believe in such statements.

Recently, a long-term analysis by the Centre for Economics and Business Research (CEBR) proved that the long believed facts are wrong. Instead, it has suggested that Britain will remain a dominant global economy after Brexit and will continue to pull away from France as Europe’s second-largest economy.

British economy, despite many failures and delaying Brexit, has successfully maintained its position in the past three years in comparison to French economy. Since, the EU referendum of 2016, France has failed to overtake British economy.

The analysis has proved that if the same pattern is followed, Britain’s output should be “a quarter larger than the French economy” by 2034 and is even expected to overhaul Germany in six years and Japan by 2034.

Immigration has played an important role in the country. With lowering property prices, more people are immigrating to the UK, which is getting benefitted by young population’s strong performance in the technological, pharmaceutical and creative industries – this would in turn boost Britain’s economy. 

However, the overall effect of Brexit over property prices in 2020 is impossible to predict.

The CEBR believes that Britain’s close ties with the US would reap benefits over the coming years, as the former seeks advantage of the strengthening “Anglosphere”. It has even stated that the countries that are successful in attracting migration tend to grow even faster.

Recently, the Queen’s speech on overhauling immigration and social security co-ordination bill proposed an Australian-style points based system to end free movement in the law. It also stated that from 2021, the EU citizens arriving in the UK will be subject to the same immigration controls as non-EU citizens.

The overhaul would also signify the fact as to if the UK’s world-class research universities and pharmaceutical sectors would remain affected post Brexit. The surveys of existing academic research of 2017 and 2019 found that the credible estimates ranged between GDP losses of 1.2–4.5 percent for the UK, and a cost of between 1–10 percent of the UK’s income per capita, with future warnings against Brexit.

Only the final result, as to if the country would have a hard or soft Brexit, would determine the impact on British economy. Since, the EU has a strong positive effect on trade, it is unclear what impact would Brexit have on foreign investment, followed with immigration and whether or not would the country meet the same fate as stated by the CEBR analysis.

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