Executive Search in UK – 2017 Outlook
Dust Finally Settling on Brexit Impact
2016 was indeed a year of immense change, globally and especially for the UK. Taking centre stage for the UK in early summer was Brexit, but, never happy to be outdone, the US muscled its way into the limelight with the most extraordinary election process perhaps ever.
Which one will have the most active role vis-a-vis the UK economy remains to be seen. One thing however is certain, the world from a British perspective is spinning on a different axis and business will be adjusting accordingly for several years. No doubt the winners will be those with the ability to respond to the opportunities and threats presented by new markets overseas.
U.K. GDP growth in 2016 was 2% and higher than expected given the Brexit issue with services and consumer spending providing the bulwarks. Growth in 2017 is expected to reduce to 1.2% as investment decisions appear to be increasingly postponed due to uncertainties over the form of an EU exit. Nonetheless a recession appears unlikely. Employment is still high and talent shortages a given.
In any case, despite a pause in the immediate aftermath of the vote, business still continues in the U.K. as many leaders appear to have decided largely to take a rolling view pending actual events if significant investment decisions are not required.
Financial services looking to Europe
This is of course not the case across the board. International companies especially in the financial services sector that rely upon EU membership for passporting rights, have been responding to overtures from across Germany and Paris in particular.
Sterling has dropped in value which is likely to have a negative effect in 2017 on house hold spending as imports and holidays abroad are affected. However, with the value of Sterling lower than for many years (and no doubt to the great unexpected delight of the Bank of England), foreign investors have been eying up U.K. assets and businesses.
We expect to see more activity in this area, notably from Chinese businesses able to leverage the value of UK brands in the home market. Japan’s Softbank bid £24 billion for ARM, the Cambridge-based silicon chip manufacturer. WellsFargo, the US bank, has decided to spend £300 million on a new European headquarters in London. It had planned to lease the office, but after Brexit agreed to buy.
Further, the weaker pound has improved the market for exports and to quote a recent PWC report that summarises this situation well they suggest that, “Looking further ahead UK trade prospects after Brexit will depend on business reorienting its efforts towards faster growing non-EU markets, notably in the tradable services area where the UK has relative strengths. The proportion of UK trade going to the EU27 countries could fall from around 44% now to only around 30-35% by 2030. Free trade deals may help this strategic shift in the longer term, but UK businesses should not wait for these before taking action to explore new markets beyond the EU.”
New Opportunities Emerge
Already the U.K. Government has made and responded to invitations to discuss trade deals with the many of the B(R)ICS and former Commonwealth countries that were previously excluded from bilateral trade deals as a member of the EU. Brazil, Mexico, the US, Japan, China and India being countries that now both see opportunities to trade with each other.
Research in the aftermath of the EU referendum has found small businesses are more upbeat about their international growth prospects than their domestic expansion. Almost half (47.8%) of more than 1,000 businesses believe they will see growth in international trade activity and only 5.5% think it will deteriorate, according to a survey by East & Partners on behalf of Western Union Business
Sentiment in the start-up community is also surprisingly positive in the wake of the Brexit decision. London is still the world leader in FINTECH developments and expectations appear to suggest that the entrepreneurial attitude of both U.K. Governments and Industry will accelerate this trend.
Plenty of Positives
A recent article in the Right-leaning Telegraph summarised the conditions:
“First, we will have lighter regulation, and it will be simpler to set up a company than anywhere else in Europe. Outside of the EU, we can ease the burden on entrepreneurs further. According to the World Bank, the UK is already the 17th easiest country in the world in which to start a business. France is 32nd, Italy 50th and Germany is 107th – and that is before you get into the five years it takes to close one down. If we can get ourselves close to top-rated New Zealand we will be more attractive to European start-ups.
“Second, we will soon have the lowest corporate tax rate of any major economy. Our rate was already scheduled to come down to 17pc, and that is now being accelerated to 15pc. That compares to 29pc in Germany and 33pc in France. The rate of capital gains tax for entrepreneurs is just 10pc, meaning that anyone who starts a company here can keep almost all of what they make. Despite what some people on the Left think, no one starts a business to make the government rich. They want to be rewarded for the stress involved. In the UK, they will be.
“Finally, there is a pool of talent and venture capital money available that makes the UK one of the easiest places in the world to grow a business. Our migration policy can now embrace high-skilled Indian, Israeli, or Chinese staff, as well as EU nationals. Even better, the huge devaluation of sterling has just made the UK a lot cheaper.”
Looking forward from the perspective of the recruitment industry, the unparalleled changes emerging also represent both threat and opportunity, but in our opinion in the U.K., we see mainly the opportunity to leverage our global relationships with partner firms within the Cornerstone group, both to help UK companies expand overseas, as well as to develop U.K. operations for overseas investors.