January sector focus: Fintech

using Fintech to make purchase in shopFintech is used describe new technology that seeks to improve and automate the delivery and use of financial services.

Originally the term was applied simply to technology employed at the back-end systems of established financial institutions.

Over time, however, the Fintech definition has been expanded to include any technological innovation in — and automation of — the financial sector, including advances in financial literacy, advice and education, as well as streamlining of wealth management, lending and borrowing, retail banking, fundraising, money transfers/payments, investment management, asset management and some would now also include crypto currencies such as Bitcoin and their administration.

Fintech is also sometimes described as disruptive technology, in that many Fintech start-ups are designed to provide financial services in non-traditional ways, such as by offering online shoppers to secure immediate, short-term loans for purchases, bypassing their credit cards or by offering online and App-only services that bypass traditional lenders.

While traditional lenders and finance providers have tried to adopt some of the Fintech innovations, they begin with burdensome overheads and cannot generally compete unless they embrace the need to fundamentally change their existing thinking, processes, decision-making, and overall corporate structure. This is not something most managers can cope with.

There is now a vast array of Fintech categories of which the following are just a few examples:

B2C for consumer banking activities such as arranging loans and providing customer credit facilities,

B2B for small business clients (as above)

B2B for small businesses for activities such as taking payments, credit management and managing debtor ledgers

B2C for consumers for activities such as contactless payment and payment by mobile phone, online banking, applying for financial services such as a mortgage or loan, online shopping payments and many more.

Fintech as a part of the UK economy

In 2017 at the first ever International Fintech conference argued that the UK was the leader in this sector with a competitive advantage in the provision of Fintech services due to its sophisticated financial community and the growth of technology hubs like Silicon Fen in Cambridge and Silicon Roundabout in London.

The phenomenon was described as being an essential aspect of the UK vision for “an outward-looking, Global Britain” which would not only provide a high skilled, high wage economy but would attract the best talent from all over the world.

At that time, according to Treasury figures, the industry was worth £7 billion to the UK economy and employed an estimated 60,000 people.

It has been calculated that there are almost three times as many UK banking and payments companies now than there were in 2005 while the rest of the world has seen theirs fall by around one-fifth on average.

In May 2018, Technation reported their research in an article in Information Age that the UK’s tech sector, of which Fintech is a part, was expanding 2.6 times faster than the rest of the UK economy, with Fintech start-ups located not only in London but throughout the UK.

The Technation analysis also looked at the impact of Brexit on the sector, finding that by and large tech firms were undaunted by the prospects of leaving the EU.

However, Financierworldwide, provided a more sober analysis, identifying some of the potential challenges to Fintech.

These included future freedom of movement of labour and the absence of sufficient numbers of skilled tech workers available in the UK, the loss of the ease of the passporting of services to other EU markets and consequently the decision Fintech companies may face of whether to relocate to other countries in Europe, at least in the short term. Among the cities expected to be most likely to benefit from welcoming such moves are Dublin, Paris and Berlin.

There is also the worry that the loss of passporting rights after Brexit would deter the currently high levels of investment in UK Fintech.

Finally, regardless of Brexit, if Fintech is to thrive, after a year of seemingly frequent banking technology meltdowns, not to mention hacking scandals, there needs to be much more robust and secure protection against fraud and data protection. To achieve this we at K2 have invested in Tricerion as the future of login security. Check it out at www.tricerion.com.

 

New Year, new start – a good time for some SME forward planning

SME forward planning problem solverThe end of last year was a time that most businesses would prefer to forget given the continuing uncertainty after the Government postponed a parliamentary vote on the Brexit withdrawal bill.

Members of both the BCC (British Chamber of Commerce) and FSB (Federation of Small Businesses) were reportedly “horrified” by this development and it is unlikely that many will have been impressed by subsequent reported Government contingency planning for the UK leaving the EU with no deal.

The eventual outcome is so difficult to predict that much business planning is on hold. This is supported by research by the BoE (Bank of England) who canvassed 369 companies about their pre-Brexit planning and found that the majority had made no changes to their business plans for the coming year.

However, this is a new year and hopefully the December shambles may have a positive side if it stimulates more SMEs to realise the need for planning.

The New Year is in any case a time when it is traditional for SMEs to refresh their business and marketing plans and while the uncertainty over the future has to be acknowledged, especially for those SMEs involved in Europe-wide, just in time supply chains, I would argue that this is a perfect time to accentuate the positive and focus on innovative thinking in SME forward planning. I would also argue that the world won’t collapse whatever the outcome and while most SMEs will be affected by Brexit, there will still be business to do.

Accentuate the positive in SME forward planning

It is often said that there are opportunities in the most negative of situations if only you look for them.

In December, the BCC issued a Brexit Business Checklist, which local Chambers have issued to their members as a downloadable PDF.

The checklist covers all the aspects that a business needs to consider in preparation for March 2019, but while it is prompted by the current uncertain situation it is also a comprehensive guide to all those aspects of a business that should be a part of SME forward planning at the start of the year.

It includes future staffing needs, issues with cross-border trade, including potential border delays and tariffs, taxation (particularly VAT), intellectual property, reviewing existing contracts, regulatory issues (such as GDPR) and competition.

So, for example, if business growth is part of your business plan and you know you may need more staff, perhaps rather than put off plans because you are uncertain about whether suitable people will be available when you need them, think about whether you can introduce systems such as automation or AI to work smarter rather than relying on finding more people.

Alternatively, how about taking on apprentices and training them for your needs.  While reliance on short-term labour can provide flexibility and help deliver short-term profits, well trained and reliable employees are valuable when building a business that has a future.

Similarly, when reviewing contracts can you find suppliers of locally-sourced components or raw materials that do not depend on cross-border supply chains?  Could you source supplies from outside the EU? Could you modify essential ingredients in your products that make you less reliant on overseas supplies?

UK businesses have historically been some of the most inventive in the world. Perhaps the ongoing political shambles will provide the stimulus for them to return to the forefront of innovation.

January Key Indicator – exchange rates and their impact on SMEs

exchange rates are no longer measured by goldThe exchange rate is the value of a country’s currency against those of others and the factors affecting this are many, especially in a volatile political climate, both globally and locally.

Among the influences are the interest rates set by central banks, inflation, a nation’s gross domestic product and trade balance, its debt and to a significant extent, the behaviour of politicians and governments towards both their own and competing economies.

Significant fluctuations in exchange rates, as has been seen over the last couple of years, then start to affect the confidence of investors, currency traders and businesses, increasing the volatility of currency values and stock exchanges.

Two obvious examples have been the plummeting value of £Sterling since June 2016, when the UK voted to leave the EU, despite occasional upticks as the negotiations over the withdrawal agreement dragged on.

Similarly, the engagement of the US President, Donald Trump, in imposing tariffs and instigating trade wars with other competing economies, particularly China, has arguably had a negative impact on both the value of the US Dollar and the performance of its own stock market.

Economic recovery, particularly in the UK and USA, has, in any case been sluggish in the decade since the 2008 global economic meltdown, which prompted central banks to set interest at very low rates in an attempt to protect their countries’ economies by stimulating investment and business activity.

A little history on exchange rates and currency values

Until the early 1930s, countries’ currencies were valued against the value of gold – the gold standard.

The quantity of gold held by a country determined the value of its currency and under the gold standard trade between countries was settled using physical gold. So, nations with trade surpluses accumulated gold as payment for their exports. Conversely, nations with trade deficits saw their gold reserves decline, as gold flowed out of those nations as payment for their imports.

The UK abandoned the gold standard in 1931 and the US in 1933, moving instead to the current fiat system, where currency values fluctuate dynamically against other currencies on the foreign-exchange markets. Fiat money is the currency that a government has declared to be legal tender, setting it as the standard for debt repayment. Essentially its value is based on market perception.

It has been argued that moving off an actual physical commodity like gold has made currency values and therefore exchange rates more vulnerable to manipulation by politicians and central banks, and therefore created a more volatile and vulnerable economic climate. This is where the market’s interpretation of politicians and central bankers is fundamental to currency values.

The effect of exchange rates on business

It is not only exporting businesses that are affected by exchange rates and currency values.

A good recent example has been the benefits to some UK SMEs, particularly in the service and hospitality industries, which during the summer of 2018 experienced something of a boom in tourism from a combination of a long season of good weather and the decline in the value of £Sterling making it cheaper for foreign tourists to visit the UK.

On the other hand, even small local SMEs whose businesses depend on selling goods and services where parts, components, food ingredients or raw materials come from overseas saw their costs rising because £Sterling’s buying power had been reduced in comparison with currencies in other countries.

Can SMEs protect their businesses from exchange rate fluctuations?

It can be harder for SMEs to protect themselves than it is for larger businesses, but the essentials for any business survival and growth are based on managing their costs and expenditure with strict and careful attention to cash flow which is best achieved by close scrutiny of monthly, or more frequent, management accounts.

If it is at all possible to manage cash flow in a way that a business can create a contingency reserve this will provide some measure of protection to a downturn in the exchange rate.

For those that have to source supplies from overseas, hedging against cost increases due to exchange rates can be done by negotiating a forward contract in your own currency based on a set price with the supplier or at least fixing the price with purchase of a forward exchange rate. This may mean missing out on future changes in the exchange rate that might benefit the SME buyer, but will provide some degree of certainty when planning ahead.

Another option may be to include clauses in your contracts which allow you to renegotiate prices should the exchange rate change significantly within an agreed period of time.

Wherever possible try to avoid the transaction fees charged by banks for making international payments. Some money transfer specialists offer an alternative, FCA regulated, service in a free multi-currency account that lets businesses hold over 40 currencies, and switch between them using the mid-market exchange rates to make payments.

While the risks of fluctuating exchange rates can be greater for SMEs with fewer reserves to fall back on planning and good communication can help to mitigate at least some of the risks.

Politicians’ ignorance can have a negative impact on the global economy

beware the influence of politicians on the global economyAs 2018 draws to a close it makes sense to look at macro-economic trends that might inform our view of the future.

Economies tend to move in cycles from positive to negative and this is true for both national and global economies.

However, while it is true that the cycles rarely match simultaneously in different parts of the world, clearly a downturn in one region can have knock-on effects in another, as was the case in the financial crisis of 2008.

For some time now, various bodies, such as the IMF, have been predicting that another major global recession is looming. Some are even predicting that the next crash will be worse than 2008.

This is partly because the accepted wisdom is that the cycle tends to be over a 10-year period, but it is also because there appear to be headwinds building up.

A snapshot of the current state of global confidence, the global ECM (Economic Confidence Model) from July this year suggests that the USA may be moving into a serious high in 2020 regarding liquid assets (non-fixed), while the rest of the world is heading in the opposite direction. The Dow Jones has been heading ever upwards, while the UK, European and Chinese markets seem to have peaked and are heading downwards. This also applies to currency values.

According to Richard Partington, a Guardian economics correspondent, the potential headwinds for 2019 include a plateau in global growth along with slower growth predicted for the US and China, plus both public and private debt around the world being at a record high. Added to these, he says, are the risks from Brexit and from the US Fed hiking interest rates.

This is where the politicians come in

Despite the 2008 crash, and the subsequent measures taken by Governments and Central Banks such as using quantitative easing and keeping interest rates low to stimulate economic activity and requiring banks hold more capital to avoid a repeat collapse, both Governments, and investors, still have faith in Government debt in the form of bonds and property on the basis that economies are stable and will continue to grow.

Both are deemed “safe” and property is used as collateral for more debt. Nevertheless, some economists argue that the restrictions now placed on foreign investment in property have actually had the effect of devaluing it and also damaging consumer confidence.

So, by this logic, policies such as those of US President Donald Trump’s “Make America Great Again”, that encourage investment to return to the US, and his threats of trade sanctions against those economies that are perceived as competition to the US economy are unlikely to help to stabilise the global economic situation and instead would build up the recessionary pressures in the rest of the world.

The UK Government, too, has been taking steps to deter foreign investment in property. Then there is the rise of various so-called “populist” movements across the world, such as in Italy, Turkey, Hungary and elsewhere, which again focus on national interest above all. Another danger, according to Partington, is victories for populist parties in the forthcoming EU parliamentary elections in May 2019. The mood would appear to be one of increasing restrictions on global trade.

Inevitably, in the event of another crash on the scale of 2008, or worse, such policies will come back to bite us all, not just the politicians. But then we did vote for them!

Productivity, working hours and health – time for a new approach?

happiness and workers' productivityProductivity, and how to improve it, is a perennial concern for the UK’s SME managers.

The country’s woeful productivity when compared with other countries has long been an issue for businesses, albeit it improved in the first six months of this year according to ONS (Office for National Statistics) figures.

Productivity is traditionally measured by the amount of work produced per worker, per working hour, but new thinking suggests that we are measuring it all wrongly.

In an article in Businessleader.co.uk entitled Are we measuring productivity all wrong the economics and productivity expert at UWE, Professor Don Webber is quoted as arguing that productivity is measured by dividing gross value added (GVA) by the number of hours of work but that until the financial crash of 2008 GVA had been disproportionately boosted by the financial services sector.

There are three components to increasing productivity, he says. They are the ability to push down costs, push up prices and sell more units.

But he says the calculation is far more complex in a consumer economy like the UK, where austerity has had an impact on the ability to buy goods and services, and not enough attention is paid to such elements as investment in more efficient systems, tools and working conditions.

Indeed, I would argue that national productivity measurement based on macro data masks the huge productivity gains made by many firms and especially those who have invested in automation, robotics, AI and new machinery. Consider the comparison of two measures of productivity and how they might show significant improvement; the first is sales by square feet in a Lidl or Aldi, both shops that stock the shop floor with pallets of goods; and the second is car manufacturers who might measure sales per worker where their factories are automated. It can be seen how the gig economy masks these productivity gain figures.

The Businessleader article also mentions some HSBC research, which found that workplace culture is a key factor to increasing productivity.

It found that businesses that offer employees the opportunity to work flexibly are more productive and that workers place flexibility ahead of financial incentives when asked about what motivates them the most.

Innovative solutions to improving productivity

In November, Shadow Chancellor John McDonnell suggested that businesses that operated a four-day week without cutting pay could see improvements in staff morale, health and revenue. It may seem counter-intuitive but there is evidence from a number of bosses whose businesses have tried it that they are reaping rewards. The economist, Lord Skidelsky, has been asked to investigate the issue further.

The Health and Safety Executive (HSE) recently announced that, for the first time, work-related stress, anxiety and depression account for over half of all working days lost due to ill health in Great Britain. In total, 15.4m working days were lost in 2017-18 as a result, up from 12.5m the previous year.

The issue of businesses paying attention to their employees’ mental wellbeing as well as their physical health has consequently attained a higher profile. A growing number of major employers, including the bosses of Royal Mail, WH Smith, Thames Water and Ford of Britain have called on the Government to give mental health the same status as physical health in HSE legislation.

Clearly, it makes sense for businesses to review their policies and practices on working hours, mental and physical health support and training, where there are now so many options for using AI and smart technology to improve working practices and where it is becoming clearer that a happy, healthy and motivated workforce is a key to improved productivity.

No sign of improvement in shoddy banking services to SME customers

the wild west of shoddy banking servicesIt has been a year of IT meltdowns, continued closures of small branches and ATMs throughout 2018 with the main High Street banks seemingly still unwilling to listen to their SME customers.

At the end of last month the Government’s Treasury Select Committee finally launched an inquiry into the “astonishing” number of IT failures in the financial services sector.

This came shortly after the BSB (Banking Standards Board) had admitted to MPs that there had been little improvement in the UK’s poor banking culture since a parliamentary commission condemned poor standards.

However, whether the select committee will also look at the other frequent complaints about the closure of small branches and ATMS, especially in rural areas, remains to be seen.

Bank IT meltdowns

The most high profile meltdown of the year was suffered by TSB in April, when millions of customers, including SMEs were locked out of its online service and banking app following the failure of its attempt to migrate customers to a new computer system. Service was restored to private customers relatively quickly but I am hearing from a few SMEs that their problems are still not completely resolved.

By September, customers of Barclays, RBS, NatWest and Ulster Bank had also been affected by their banks’ IT issues and in November it was the turn of HSBC’s mobile apps for the fourth time in a month.

The FCA (Financial Conduct Authority) and the Bank of England’s Prudential Regulation Authority also published a discussion paper which suggested that they were considering policies that force banks to improve operational resilience. Among the suggestions were that there should be a maximum outage time of two days and that they should have back-up systems in place.

Banks were given until October 5 to respond. So far there has been a deafening silence on the results.

Small branch and ATM closures – more shoddy banking services

Perhaps more concerning is the numbers of small branches and ATM points being closed.

According to research by Which? a total of 757 branches have been closed or scheduled for closure in 2018 and January 2019.

Which? has been tracking bank branch closures since 2015. At least 2,961 branches have been shut down in the past four years, at a rate of 60-a-month.

The excuse given by the banks is that because more people are now using mobile or online banking it is uneconomic to maintain small branches. According to a report published by UK Finance, the trade body that represents banks, 71% of adults used online banking in 2017, representing 38 million people.

At the same time an estimated 250 free-to-use cash machines are disappearing a month as operators shut unprofitable ones, according to the network co-ordinator Link.

But all these cost saving measures by the banks seem to take no account of the difficulties faced by many SMEs and private customers in small towns and villages across the UK where broadband and mobile phone signals are far from reliable.

The situation has prompted the FSB (Federation of Small Businesses) chairman Mike Cherry to say: “We want to see banks properly justify reasons for closure.  Bank branches are vital to a lot of small business owners.”

And the final irony – a survey carried out by TSB in November found that 68% of small businesses believe their banking needs are being overlooked in favour of larger, more profitable companies.

The survey report said: “Banks must commit to providing face to face local business support in the real economy, not just metro economies, thereby ensuring that not just those that are digitally savvy or based in big cities are able to get the advice and services that can help grow their businesses.”

Automatic closure of accounts

While less reported in the press we are still coming across SME clients whose accounts have been automatically closed, many after years of being a customer of the bank without a record of breaching covenants, exceeding overdrafts or bouncing cheques. The banks try to hide behind claims of concern about money laundering where in practice it would seem that computer driven assessments automate the closures. And in every case we’ve heard of not even a phone call had been received.

So much for banks wanting to have a relationship with their SME customers or being customer orientated. You couldn’t make it up!

Is there a link between unethical personal behaviour and corporate behaviour?

infidelity and corporate behaviourCan and should investors expect the corporate behaviour of CEOs to be ethical if their behaviour in private is less so?

Releasing the names of those people who had registered their interest in having an extra marital affair following a hack of the Ashley Madison data base caused much vicarious interest. While it no doubt embarrassed those who were exposed and possibly excited some divorce lawyers, it raised the question as to whether someone who deceives their marital partner is more likely to deceive their business or their business partners and shareholders.

It prompted research in the USA by authors John Griffin, Samuel Kruger and Gonzalo Maturana, who then published their work Do personal ethics influence Corporate ethics?

They had cross matched some of the names revealed with corporate information available from Lexis Nexis and other sources, and against the US’ Financial Industry Regulatory Authority’s BrokerCheck and the results revealed a correlation between those financial advisers exposed for marital infidelity and those with a record of serious misconduct revealing that they were twice as likely to have committed an offence.

A similar correlation was revealed when they checked revealed names for chief executives and chief financial officers.

Is ethical behaviour the same whatever the context?

The authors argued that there is plenty of research that shows that the behaviour of CEOs influences others in a company: “other employees perform better if they think the top management is trustworthy and ethical”.

I recall being asked by owners of a nightclub in Greek Street to investigate its lack of profits with view to improving them. I quickly discovered that significant amounts of cash were disappearing from the tills. It turned out that the owners were popping in to take cash, the managers knowing this were also taking cash and so were the staff. Everyone was at it and it was clear that the business was morally and culturally bankrupt with no one interested in it being successful. Theft had become part of the culture where knowledge that others were stealing made it OK. I closed it down and sold the premises on the grounds that a cultural transformation was required based on changing all staff and the behaviour of the owners.

There is a debate to be had about whether some behaviour is acceptable in the corporate context that would not be acceptable in private or social life.

Businesses are largely results and profit-driven and these days investors expect results in a much shorter time than they would have in the past. While outright cheating, deception or breaking the law would not be condoned, aggressive pursuit of corporate goals is arguably a much greyer area.

According to the website ethical systems.org “Research suggests that people’s moral compasses are malleable and that various factors influence them. People do differ in their levels of personal integrity, but everyone is susceptible to environmental influences.”

It argues that the behaviour of leaders can therefore have a critical influence on the behaviour of those they are leading. My example of the nightclub supports this.

It makes sense, therefore, that leaders should demonstrate a balance between a focus on outcomes and goals and the means by which they are achieved and that it is important to also focus on people’s efforts to improve and to reward them.

There is also the argument that if a business is receiving bad publicity for the way in which it treats customers and addresses their customer complaints such that it is perceived to be entirely profit-driven and paying scant attention to the quality of service then ultimately the business will be damaged.

So logically, if such behaviour is damaging the bottom line, then the return to investors will also be damaged, and it therefore makes sense for investors to pay attention to the ethics of CEOs both in their private and their corporate behaviour.

December Sector focus – are residential care homes viable businesses?

care homes resident and carerThere have been question marks over the financial viability and sustainability of private residential care homes for the elderly since the collapse of Southern Cross in 2011.

At the time it was the largest provider of private residential care homes in the UK and for the first ten years of its existence had been deemed a financial success.

The company was set up in 1996 by a businessman named John Moreton following Government changes to the care home system, resulting in financial cutbacks alongside the imposition of higher standards, which pushed many small independent, essentially family-run, providers out of business.

By 2002 Southern Cross had 140 sites and attracted venture capital interest from WestLB, and two years later, from US private equity firm Blackstone, which bought the business for £162 million.

It continued with acquisitions until the 2008 Financial Crisis, whereupon it became unable to pay a debt deadline of £43 million, its share values plummeted and it began selling assets to pay its debts.

It is a familiar story, but it does not seem to have diminished the appetite of private equity to invest in the care home sector.

However, there have long been concerns about its viability, the most recent in November 2018 being a warning from the regulator the CQC (Care Quality Commission) that Allied Healthcare, the UK’s current largest provider, owned by German private equity investor Aurelius, could cease operating within weeks, again because of loan repayments falling due.

Sustainability problems for the private residential care homes sector

Care homes’ income comes from a combination of self-supporting residents who pay a average of £830 per week for their accommodation and care and from local authority-funded residents, whose maximum payments are considerably below the required cost.

At the moment there are over 400,000 care home beds in England but a lack of public sector care home provision has led to warnings that there will be a shortfall of some 28,000 beds by 2025, according to AMA Research published in its The Care Homes Construction Report, which found that the majority of developers were concentrating on building in areas with a high concentration of potential self-funded residents.

In November 2017 the CMA (Competition and Markets Authority) warned that the sector was on the verge of collapse largely because there was a £1 billion shortfall in costs due to local authorities being unable to meet the actual costs of care provision.

Its analysis of the sector’s financial viability found that the industry was at a “tipping point” and that it had come across instances where local authority-focused care home providers were exiting the local authority segment and that some providers had handed back care home contracts to local authorities.

It concluded that providers have generated most of their profits, in aggregate and on a per resident basis, from non-local authority funded residents, where self-funded residents have made a higher contribution towards fixed costs and common costs such as overheads and that providers have been loss-making in economic terms, i.e. returns below the cost of capital, on local authority funded residents.

It also concluded that many providers were carrying unsustainable levels of debt.

In February 2018 the CQC introduced a new financial viability test on new care providers. It should be remembered that the CQC is responsible for vetting standards of provision and quality of care in care homes and rating them accordingly. Where improvements are required this will mean additional expense for the owners.

Given that investors in private equity and venture capital require a significant return on their money, and in recent times have been less than patient about waiting to get it, all this would suggest that the current model for financing care homes is not viable and significant changes are needed to the model of care provision for the elderly, both local authority-funded and self-funded.

December key indicator – the UK economy at the end of 2018

storm clouds over UK economyAs the end of the year approaches, this month’s Key Indicator looks at the state of the UK economy.

Assessing an economy is not only about facts and figures, it is also about perspectives over time and the effects of business sentiment, and there is little doubt that the country has been facing an uncertain future for the past two years.

Since the Financial Crisis of 2008, the UK economy dropped from being one of the fastest growing of the G7 economies (UK, Canada, France, Germany, Italy, Japan and the US) to being the slowest by the first half of 2018.

The UK economy shrunk by more than 6% between the first quarter of 2008 and the second quarter of 2009 and took five years to get back to the size it was before the recession. Had the pre-2008 momentum been maintained it has been calculated that productivity would have been 20% higher than it actually was at the end of 2017. The size of the UK economy has increased by just 9.7% since its pre-downturn peak according to the ONS (Office for National Statistics).

The impact of confidence – or lack of it – on the UK economy in 2018

It is generally accepted that from large corporates to SMEs, businesses dislike uncertainty since it has a significant impact on their ability to plan ahead with any confidence.  Confidence, or lack of it, also affects the behaviour of investors and lenders when considering investment in growth. This can be seen partly in the behaviour of the stock market, which has been decidedly volatile in the last two years, thanks to three main factors: the ongoing opacity of the Brexit outcome, the potential for a change of government to one that is viewed as anti-capitalist, and the potential consequences of a US trade war with China.

The rapid upturn in markets following the announcement after this weekend’s G20 summit of a 90-day suspension of tariffs to allow for US-China trade talks is a good example of volatile market sentiment.

PWC (Price Waterhouse Cooper) analysis reflects some of this sentiment in its most recent assessment of the UK economic outlook, which expected growth to remain modest at 1.3% in 2018 and 1.6% next year.

IHS Markit/Cips monthly snapshots also reveal levels of confidence among different sectors of the UK economy. Its most recent Services sector (retail, hotels and transport) confidence indicator had dropped from 53.9 to 52.2.

A Dun & Bradstreet survey of SMEs in November also found that 40% felt Brexit had slowed their growth and another piece of research by Deloitte found that only 13% of CFOs were more confident than three months ago and 79% felt that the longer term business environment would be worse after the UK leaves the EU.

Both the ONS and the Bank of England’s most recent assessments (to September 2018) indicated that investment by companies fell by 0.7 per cent in the three months to June, following a contraction of 0.5 per cent in the first quarter and that many businesses are putting investment on hold.

The Investment Association has calculated that UK investors have pulled nearly £9 billion from funds investing in British companies since the referendum.

Clearly confidence is crucial to investors as well as to business planning.

The health – or otherwise – of sectors in the UK economy

As I reported in my latest blog on the quarterly insolvency figures, there is a gradual upward trajectory in insolvencies which accelerated in the third Quarter with an increase of 8.9% on the previous quarter, driven largely by CVLs (Company Voluntary Liquidations) primarily in the construction, wholesale and retail sectors.

Retail sales were down in October and house price growth has been stalling throughout the year and is now at its weakest level since 2012.

However, the fall in the value of £Sterling against other currencies has arguably benefited the leisure and tourism industries since it makes visiting the UK more attractive to overseas visitors. This is borne out by the ONS growth figures for Q3, which showed that rolling three-month growth was 0.6% in September 2018, building on growth in the previous two months.

It has also benefited the car manufacturers, whose exports to non-EU countries increased by £1bn, while imports fell by £1.7bn, in the three months to September. Domestically, however, trade in motor vehicles decreased by 6.2% in September which might suggest a decline in consumer confidence.

The impact of £Sterling devaluation is also reflected in the latest ONS figures, that showed that there has been an increase in UK firms trading internationally by almost 16,000 last year. The total of 340,500 businesses trading abroad represents 14.3% of non-financial businesses in Britain. Non-financial services made up 53.1% of Britain’s international traders. Manufacturing growth also resumed in Q3 after two consecutive quarters of contraction.

Traditionally, the UK’S financial sector has been the strongest part of the UK economy, but there are some worrying predictions on the horizon with the possibility of an estimated 5,000 City jobs being lost, according to the City minister, John Glen, and the Bank of England, and as many as 37 finance firms potentially preparing to relocate to Europe. Indeed, many have already established offices abroad as part of their Brexit planning.

It should be emphasised that both a degree of clarity over the eventual position of the UK economy outside Europe and a longer time perspective are needed to be able to predict the future for the UK economy with any certainty.

But, all in all, the picture at the end of 2018 is decidedly mixed and it remains to be seen whether investment will recover and exports will continue to increase in the coming year.