Public services in the UK may face a financial squeeze for years to come according to the Institute for Fiscal Studies (IFS), as reported by Reuters.
Finance minister Philip Hammond has indicated a softer fiscal stance toward managing the economy, but the think tank has cast doubt on the ability to ease austerity policies in the near term.
Hammond’s half-yearly budget update is due to be revealed on 3 March, with details of the money available for public spending. The UK is due to leave the European Union two weeks later, but the terms of the departure are still unclear.
The October annual budget showed Hammond giving more support to the economy, with higher spending levels. However, spending more on healthcare has left little to spare for other public services.
IFS research economist Ben Zaranko said: “This suggests yet more years of austerity for many public services – albeit at a much slower pace than the last nine years.”
Outside of health, defence and overseas aid, departments saw spending levels fall by an average of 3% per year in real terms after 2010. The outlook is for 0.4% annual falls in spending in inflation-adjusted spending, according to the IFS.
A statement from the finance ministry said: “The (finance minister) has said that hte Spending Review will take place in 2019, and that is the right moment for government to make long term funding decisions.
“Outside the (health service), total day to day departmental spending is now set to grow in line with inflation, and public investment will reach levels not sustained in 40 years in this parliament.”
The appetite for financial risk among British businesses has fallen to its lowest level in a decade, according to a survey by accountancy firm Deloitte reported by Reuters.
The survey indicated that investors are deterred by fear of a hard Brexit and increasing US protectionism.
The UK is less than eight weeks away from the supposed date of an exit from the European Union, but the terms on which the exit will take place remain unclear after a transition deal brokered by the Prime Minister was rejected by the House of Commons.
Without a deal, Brexit may proceed without transition arrangements, which leads many to fear severe problems with supply chains and delays at ports.
Deloitte chief economist Ian Stewart said: “Corporates are positioned for the hardest of Brexits, with risk appetite at recessionary levels and an intense focus on cost control.”
Another survey, issued by the Institute of Chartered Accountants in England and Wales (ICAEW) showed a similar sentiment, indicating Q1 growth of just 0.1 percent, the joint-weakest since 2012.
The Deloitte survey found that 78% of the 100 companies taking part said they feared Brexit would damage the economy in the long term, whereas only 10% expected a improvement.
Businesses have asked UK politicians to ‘get a grip on Brexit’, amid continued uncertainty over the future relationship with the European Union, according to Reuters.
Businesses are stepping up preparations for the event of a no-deal exit while some large companies are setting up emergency rooms to deal with the chaos of leaving without adequate trade provisions.
By law the UK is due to leave the EU on 29 March 2019, but there is as yet no agreement on the terms of leaving will be. In a parliamentary vote, MPs rejected the withdrawal agreement negotiated by Prime Minister Theresa May.
Leaving the EU without a deal could result in ports facing significant delays, damage to supply chains and shockwaves in financial markets.
The UK shipping industry’s representative body, the UK Chamber of Shipping, said through chief executive Bob Sanguinetti: “We need to put aside party politics and in the moment of need that we find ourselves in, we need to look at the bigger picture and look at what’s best for the country.”
James Stewart, head of Brexit at KPMG, said: “may of the businesses we’re speaking to are praying for an extension to Article 50. Nearly all larger firms are now preparing for Brexit, after some came late to the party – however the timing of no-deal implementation planning remains highly variable.”
Possible resolutions to the crisis include a no-deal Brexit, a last-minute agreement on an amended deal, a delay, a fresh general election or a referendum re-opening the question of Brexit altogether.
The headquarters of electronics giant Sony is to move from the UK to the Netherlands to avoid Brexit-related disruption, according to BBC News.
The company said the move would help to avoid customs issues connected to the UK’s exit from the European Union. The company will not move personnel or operations from existing UK sites, despite the change in official HQ.
The move is the latest in a series of signals from Japanese companies that there is serious concern about the impact of Brexit on trading conditions in the UK.
Japanese Prime Minister Shinzo Abe expressed concern about Brexit on a recent visit to the UK, saying it could hurt the Japanese companies that employ 150,000 people within the country.
Panasonic recently announced a similar move in HQ, but confirmed this would impact fewer than 10 of its 30 employees in the UK HQ.
Sony spokesperson Takashi Iida said the move would mean only common customs procedures would be required for Sony’s European operations following Brexit.
Japanese firms MUFG, Nomura Holdings, Daiwa Securities and Sumitomo Mitsui Financial Group have also said they plan to move their European headquarters away from the UK to set up in mainland Europe.
Carmakers Toyota and Honda have also announced plans to freeze investment or operations in the UK due to Brexit.
British pub chain JD Wetherspoon Plc has warned of low pretax profits in the first half of its fiscal year, according to Reuters.
The chain has been fighting against higher costs as a rise in the minimum wage rate, growth in property prices and a Brexit-related fall in the strength of the pound have combined to make trade challenging. There is also a trend towards young people in the UK drinking less alcohol.
In November the chain said it would be raising pay for employees, as well as adjusting prices to allow for a new sugar tax on soft drinks.
Chief Executive Tim Martin said: “Costs, as previously indicated, are considerably higher than the previous year, especially labour, which has increased by about 30 million pounds in the period.”
JD Wetherspoon has over 900 pubs in Britain and Ireland, with plans to open a further 5 to 10 sites in this financial year.
The chain said despite the lower profits, like-for-like sales rose 7.2% in the 12 weeks to 20 January 2019, showing there was strong demand in the Christmas period. Rival Marstons Plc reported a 5.7% rise in its Christmas sales for the 16 week period leading to 19 January.
EU chief negotiator Michel Barnier has rejected the idea of the UK collecting customs duties on behalf of the trading block, according to BBC News.
Barnier confirmed that the EU would not delegate “excises duty collection to a non-member”, noting that the EU wished to retain control of its money, law and borders just as much as the UK.
Barnier and UK Brexit Secretary Dominic Raab agreed that progress has been made in talks but that “obstacles” remained to achieving a deal by October.
Raab said: “We have agreed to meet again in mid-August and then to continue weekly discussions to clear away all the obstacles that line our path, to a strong deal in October – one that works for both sides.
The concept of the UK collecting duties on behalf of the EU had been a prominent feature of UK proposals for post-Brexit trading arrangements, a Facilitated Customs Arrangement. The system would see the UK collecting tariffs for the EU in a bid to ensure frictionless trade.
Barnier said the white paper put forward by the UK government was a “real step forward” but that “we are not at the end of the road yet.”
Bank of England Governor Mark Carney has spoken out against the ‘low road’ of protectionism, saying the trend would cost jobs and growth, according to Bloomberg.
Carney said signs of strain were beginning to show on the world economy as a result of trade barriers.
The Governor said: “We can choose between a low road of protectionism focused on bilateral goods-trade balances and a high road of liberalisation of global trade in services.”
“The low road will cost jobs, growth, and stability. The high road can support a more inclusive and resilient globalization.”
Carney said the impact of US tariffs imposed in June was likely to be small, but a larger increase “would have a substantial impact” including indirect effects on the economy through reduced business confidence and poorer financial conditions.
Carney said he believed interest rates would, in the long run, return to pre-financial crash averages. This means around 5% in the UK, ten times the current level. However “a lot of things have to go right for that to be the case.”
The Bank of England head also said that in the event of a no-deal Brexit, banks would probably face a ‘disorderly Brexit stress test’ in March 2019.
The Financial Conduct Authority (FCA) has proposed a minimum interest rate for savings accounts to improve returns for loyal savers, according to BBC News.
The FCA has said savers who stay with the same bank or building society for a long time are sometimes penalised by being given poor rates. Some banks pay only 0.05% on instant access accounts.
A Basic Savings Rate (BSR) would apply to all easy access ISA cash products and savings account, applies once the account had been open for a set period, for example one year.
Christopher Woolard, executive director of strategy and competition at the FCA said: “Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers.”
Citizens Advice estimates that customers lose around £48 a year by now switching accounts.
The FCA has proposed that banks would set their own BSR, which would be featured prominently on their site and materials, allowing consumers to compare rates more easily.
The FCA has attempted to address the problem before, by encouraging customers to shop around and asking banks to share information about how to switch accounts. It has also named and shamed the brands paying the lowest rates, but the problem remains.
The prolonged hot weather in the UK could impact food supplies later in the year, worsening the impact of any disruption caused by a no-deal Brexit, according to the Food and Drink Federation (FDF).
There is still no certainty about the nation’s trading relationships following Brexit, which is due to take place in March 2019.
Ian Wright, director general of the FDF, said on BBC radio: “We’re going through the most extraordinary summer and we’re already seeing farmers struggling with crops, with feed for ruminants (Cattle and sheep). There are vegetable shortages because there hasn’t been enough rain.”
Brexit-related disruption to food imports and border crossings could exacerbate the situation, according to Wright.
Brexit Secretary Dominic Raab indicated the government is making preparations to ensure a stable supply of food in the event of disruption. Around 40% of food eaten in Britain is imported, mostly either from or through the EU.
Raab said: “Those businesses importing food, ingredients and finished goods will need to get their goods across the border before March 29 to ensure they don’t suffer disruption from customs changes.”
A shortage of carbon dioxide is causing problems in the food retail sector, according to BBC News.
The gas is used to carbonate drinks and is also deployed to stun animals prior to slaughter. A shortage of CO2 is impacting the supply of beer, soft drinks and meat to supermarkets.
The Food and Drink Federation chairman Ian Wright has said supplies are not expected to return to normal for one week, and in the meantime “choice will be eroded.”
Wright said: “We will see fewer chicken dishes, fewer pork and bacon dishes. We’ll see probably less carbonated drinks and certainly bakery and other things that benefit from what’s called modified atmosphere packaging, which is plastic packaging with a tray underneath and a dish of food in them.”
Baking brand Warburton’s has blamed the gas shortage for halting production at two of its four plants, while a number of other companies have admitted their production has been disrupted.
The British Retail Consortium said: “We are aware of specific pressures in some areas such as carbonated soft drinks, beer, British chicken and British pork but the majority of food products are unaffected and retailers do not anticipate food shortages. However, it is likely that the mix of products available may be affected.”
A spokesperson for the Department for Environment, Food and Rural Affairs said: “They said: “We have been assured CO2 producers are working as fast as they can to get plants up and running again, with CO2 production set to start very shortly.”