Last week in review: A financial roundup
OBR forecasts that Brexit would damage UK-EU trade are unfounded, says IEA
The Institute of Economic Affairs (IEA) challenges the notion put forward by the Office of Budget Responsibility (ORB) that Brexit would significantly affect UK-EU trade. The ORB predicted that the UK economy would see a 4% reduction in long-run productivity and a 15% decrease in exports and imports.
A recent report by the IEA showed that goods trade between the UK and EU did not exhibit a Brexit impact, with trade flows to EU and non-EU destinations generally moving in tandem. Excluding precious metals, exports to EU destinations increased by 13.4%, while exports to non-EU countries rose by only 5.7%.
Services trade between the UK and EU also showed no adverse effects, with service exports increasing by 14.8% from 2019 to 2022. The analysis by the IEA dismisses the idea that the Brexit referendum disrupted EU/UK trade, suggesting that Brexit, coupled with post-pandemic trade rebounds and new trade agreements, may actually bolster UK trade, resulting in continued economic growth.
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PwC to cut up to 600 UK jobs as attrition rate plunges
PwC has announced plans to cut up to 600 jobs, which make up approximately 2.4% of its 25,000-strong workforce. The cuts will come primarily from the advisory and tax departments, citing weaker growth, increased costs, and reduced employee turnover.
PwC’s chair, Kevin Ellis, defended the decision, emphasising the need for competitive pay packages for senior staff while asserting that the most senior partners and first-year staff would likely be spared.
The company reported a fall in UK profits from ￡1.5bn to ￡1.3bn in 2022, with an increase in staff numbers and a lack of attrition. The job cuts follow PwC’s announcement of ￡906,000 in payouts to over 1,000 UK partners.
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Brexit has hit UK's economic openness, says Bank of England governor
Bank of England Governor Andrew Bailey has called for increased cooperation on financial rule-making, expressing concern that Brexit has impacted the “openness of the UK economy.” While not taking a position on Brexit itself, Bailey emphasised the need for strong regulation based on agreements with foreign watchdogs, opposing trade protectionism, and regulatory fragmentation.
Addressing the UK economy, Bailey expressed optimism that inflation would return to the Bank’s 2% target within two years, but noted that current interest rates may need to remain elevated for an extended period to achieve this goal. Huw Pill, the Bank’s chief economist, suggested waiting until mid-2024 before considering a rate cut, expressing concern about high borrowing costs potentially leading to a recession.
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UK finance firms face $150 million levy to fund 2024/25 compensation claims
The UK’s Financial Services Compensation Scheme (FSCS) anticipates imposing a levy of ￡415 million ($510 million) on UK financial firms for 2024/25 to cover redress claims from customers affected by poor advice and insurance provider failures. This figure is higher than the previous year due to larger surpluses carried over from 2022/23, which reduced the 2023/24 levy to $270 million.
?The upcoming levy is expected to encompass claims related to self-invested personal pension (SIPP) operator failures and payouts for insurance firm failures from previous financial years.
?Martyn Beauchamp, Interim Chief Executive of FSCS, said in a statement: "From a claims perspective, we are seeing recent trends continuing. Most of our compensation continues to be paid out for poor financial advice and for legacy insurance provider failures, both of which include some of the most complex defaults and claims we handle.".?
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British economy flatlines in third quarter of the year, update shows ahead of budget statement
According to figures released by the Office of National Statistics, the UK economy showed zero growth in the third quarter of the year. Despite analysts expecting a modest decline in output, the economy faced headwinds, including higher interest rates aimed at curbing inflation.
The central bank, like others globally, raised interest rates to counter supply chain issues during the pandemic and increased costs resulting from Russia’s invasion of Ukraine, which resulted in higher food and energy prices.
The economic climate, marked by higher interest rates and labour market challenges, is expected to lead to flatlining activity until mid-2024, according to Ian Steward, chief economist at Deloitte.
Treasury Chief Jeremy Hunt said the budget statement he is set to deliver on November 22nd will focus on how to “get the economy growing healthily again by unlocking investment."
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