One could be forgiven for assuming the UK’s economic outlook is set to be positively bleak in 2018. Despite recent good news that the EU is now willing to move onto the next phase of Brexit talks with the UK, investors are still being warned of dire Brextremist consequences should they choose to bring their money into the country now. But is this drumbeat of negative commentary an accurate reflection of what’s really going on in the UK? The evidence suggests not.
Let’s look at employment. Ever a good bell-weather of economic health, employment in the UK is at an all-time high, according to official statistics. Recruitment firms are registering strong hiring patterns from employers across all sectors – a feeling that appears to be vindicated by the record high job vacancy levels. Brexit seems not to have impacted the disruption of modernisation which has seen as many – if not more – jobs being created as being made obsolete, while small, start-up firms are continuing to grow, unhindered by the Brussels negotiations.
Look also at what the likes of Goldman Sachs and Bloomberg are doing in London (rather than what their top brass are saying about it). Just like Siemens, Boeing, Merck and many other multinationals, they are actually building out their UK presence, in spite of the commentariat’s warnings that Brexit is causing investment paralysis. One could point no less confidently to the hiring ambitions in London of Facebook, Google and other tech behemoths.
And what of the argument that other EU countries are looking to capitalise on the UK’s misfortune by attempting to poach British jobs for their own labour market? Again, the evidence we have doesn’t bear this out. For instance, earlier this year UK-owned National Express made a lucrative sale of its C2C rail franchise. Starting at Shoeburyness in South East England, the London hub of this line is Fenchurch Street, so it’s a prime line for those working in the City and financial services. If the prevailing media narrative of “bankers leaving the UK for Europe as Brexit bites” is true, one would think the line would now be a dud, not worth purchasing at all. Yet it was purchased by none other than the FS Group, a company owned entirely by large EU member Italy, while the runner-up in the bidding process was Dutch-owned company Abellio. So here we have EU-owned companies investing in the UK on the basis that jobs, like those in financial services, will remain in the UK. Hardly a sign of doom-and-gloom.
Indeed, the outlook for the Prime Central London residential market is for the most part positive. While supply remains high, especially for single-family homes and apartments in established locations like the banks of the Thames, demand remains similarly strong. The pound is pegging at affordable levels, so properties in the capital are currently better value than they have been for some years. This foreign spending power is enhanced by the fact the likes of China continue to see sustained and strong economic growth whilst events in the Gulf create a need for an asset-backed security of wealth in London, making London property the obvious choice.
So why all the fear-mongering then? Conspiracy-peddling as it sounds, the reality is that journalists and politicians are serving their own interests in claiming that the UK’s EU exit will be more tortured than it actually will be (the BBC’s experts, for instance, are charging lucratively to speak at investor conferences where they exaggerate matters). The simple truth is that too many nations across the EU – in fact, all but Luxembourg – would be financially and economically impacted by a Bad Brexit, making it in THEIR INTEREST for our exit to be settled sensibly.
Therefore, contrary to prevailing opinion, I recommend that investors should not sit and wait to be pleasantly surprised by a “good” Brexit to happen, but build for it in 2018.
Dr Savvas Savouri, Chief Economist and Partner at Toscafund Asset Management.