Executive Search in United Kingdom – 2019 Outlook
All Brexit Scenarios Point to Growth Decline
Politically, Britain is facing one of the greatest crises since wartime. The nation is divided over Brexit and the political classes and processes increasingly appear both incompetent and unfit for governing in a modern era. Economic considerations barely appear to register in the ongoing debates.
What is clear is the sheer level of uncertainty and lack of clarity. As a result, investment decisions are being held off.
Most indicators are generally negative, either directly (i.e. lower levels of inward foreign investment) or, despite appearing positive, hiding underlying issues (high employment – see below).
Private consumption has been constrained by slow growth in real incomes. Business investment—which was affected by expectations of higher trade costs and uncertainty over the terms of the withdrawal from the EU—has been lower than expected given robust global growth and favorable financing conditions. Announcements of increased government spending in 2019 and tax cuts in the latest budget are a step in the right direction but the overall conditions are increasing negative.
Overall decline expected
All scenarios for Brexit are uncertain but generally indicate a decline in growth. A smooth exit could see 1.5% growth over the next few years according to the IMF but interestingly, the IMF holds out a positive potential scenario that a smooth exit could even be a stimulus to more trade. Sterling is reflecting the uncertainty and is down from its high point pre-referendum of over 1.40 to current lows of 1.12. A smooth exit is likely to see Sterling increasing in value.
The devaluation of the pound has had a positive impact on exports and inbound tourism since the referendum but this effect is weakening against the backdrop of increasing trade-wars and slowing international growth.
Much rests on the deal struck.
No deal would certainly result in contraction in the short-term to mid-term. The extent to which it could be disorderly will increase risk to the economy and global positioning, including rate of capital flows, asset prices and the value of sterling.
Public debt remains high despite years of austerity and cuts in public service. The cost of servicing debt is expected to increase from an estimated 7.7% of GDP in 2017 to around 9.6% of GDP in 2023 according to PwC.
Low unemployment hides issues
UK unemployment is running at historically low levels and amongst the lowest in Europe with skill shortages evident not just in cutting-edge industries but also public services such as the UK health system. This simple metric however masks a raft of ‘employed’ individuals on zero-hour contracts and minimum wage jobs that are below the level of a living wage. Wage inflation is heading upwards as spare capacity in the economy reduces – this fact further increased by EU workers heading home.
The UK still remains behind many other European countries for productivity per working week as investment by companies in training people remains weak.
The UK remains economically unbalanced in terms of regional productivity with London and the South East disproportionately able to create value and wealth compared to other regions. Inequality remains high and is, in no small measure, a significant contributory factor in the Leave vote, despite Leave being most likely to have the greatest negative consequences for the poorer areas.
Time to be a grad
By contrast, graduate starting salaries for the leading UK businesses hit an all-time high in 2018 – reportedly over £45,000 for the best paid.
Looking forward, UK growth is expected to be low (the first two decades of this century have been running at approx 2% – historically low). PwC projects 1.75% as the increasing effect of an ageing population is taken into account
According to the latest PwC report however, ‘there is scope for government, working with business, to boost UK growth to 2% or more by promoting artificial intelligence and other new technologies, reforming tax and regulation to support productivity growth, encouraging greater participation in the labour force by older workers, and retaining an open approach to global trade after Brexit.’
Nothing is fixed for the future and much hard work is certainly required to steer UK PLC away from rocky waters.
