2017 – a UK financial retrospective - Image

2017 – a UK financial retrospective

In the opening instalment of a series of articles dedicated to examining the past, present and future of UK businesses, we look back on one of the most volatile and challenging years in recent memory. From Brexit to business rates to Budgets and beyond, join us on a whistle-stop tour of the last 12 months as we take the first steps towards ascertaining what lies ahead for fledgling and fully-formed firms alike.

The Brexit effect

No analysis of the financial industry’s 2017 timeline would be complete without addressing the elephant in the room: the UK’s departure from the European Union. Despite our exit – better known these days as ‘Brexit’ – still lying 15 months away with its current March 29th, 2019 due date, it’s been impossible to miss the substantial impact that both last year’s EU referendum, and indeed the subsequent negotiations between our government and the EU’s teams, has had on UK finances this year.

Take the country’s currency. Since January 31st, 2017, we’ve seen GBP’s worth drop from an already unfavourable €1.16 to €1.13 at the time of this article’s writing, with its nadir coming in August as the Independent reported its value nearing an eight-year low at €1.07. Fears have even risen among certain financial analysts that the situation might decline to the point where those exchanging £1 will receive less than €1 in early 2018 for the first time in both currencies’ histories.

This turn of events wouldn’t necessarily spell doom for UK businesses next year, however, at least if the record export rates boasted by sectors such as manufacturing in 2017 are any indication. As we revealed in our September evaluation of how GBP’s freefall could impact SMEs and other firms, surveys conducted by manufacturing trade group the EEF and private equity company ECI Partners over the course of Q2-Q3 2017 showed export demand boosting British manufacturing output considerably, as well as rabid enthusiasm among UK firms to continue selling overseas judging by the 70% intending to do so moving into the New Year. Many major firms are still investing within the UK too, as evidenced by BMW’s recent commitment to developing electric Minis primarily at its Oxford plant in the near future.

Another concern frequently raised by our impending EU departure – whatever form Brexit takes – involved UK economic growth, or rather the potential lack thereof. The Office of Budget Responsibility (OBR) predicted last month that our national economy would expand in size by just 1.5% in 2017, a severe downgrade compared to their original March forecast of 2%, with this growth likely declining further to an average of 1.4% over the next five years. Quite how much Brexit negotiations influenced these figures remains up for debate, but the aforementioned fluctuations in sterling as well as diminishing business confidence would almost certainly have factored into the OBR’s calculations.

While such marked economic uncertainty inevitably affected – and will doubtless continue to affect – countless businesses this year, the most significantly damaged sector was seemingly that of UK banking. Just weeks after we reported Reuters data as suggesting that as many as 762 domestic bank branches could close before January 1st, 2018, RBS and NatWest announced their decisions to close 62 and 197 local banks respectively, then Lloyds followed suit by shutting down 32 branches of their own. That said, we should perhaps refrain from immediately attributing these historic moves to Brexit uncertainty, since all three institutions cited declines in the number of customers visiting their physical branches as being key to their rationale.

Less ambiguous were the Bank of England’s motivations behind its decision to raise interest rates for the first time in nine years, from 0.25% to 0.5%. You can read our guide to the implications of this game-changing development for full details, but in short, the UK’s central financial institution hopes to bring inflation down from its – largely Brexit-induced – current 3% level to its 2% target so as to strengthen the national economy, meaning consumer spending and therefore certain businesses’ finances may suffer in the interim. As we will discuss in our final December blog, businesses should also expect further 0.25% increases in 2018, since the Bank’s Monetary Policy Committee (MPC) aims to cap interest rates at 1% by 2020.

Budgeting for business futures

With all these economic struggles came increased pressure on the government to provide additional support to UK businesses: enter the Spring and Autumn Budgets. Among the most noteworthy pledges made by Chancellor Philip Hammond last March included corporation tax falling to 19% next year; the need for personal service businesses to pay tax on dividends over £2,000; plans for the abolition of Class 2 National Insurance Contributions in April 2018; the introduction of Small Business Rate Relief (SBRR) for small- and medium-sized enterprises (SMEs) whose properties hold a rateable value of £12,000 and below; along with funding which enables local councils to struggling firms with “discretionary relief”.

Come November, the Autumn Budget’s launch offered further insight into how the playing field for SMEs and large-scale firms alike could potentially shift next year. Mr. Hammond announced last month that the VAT threshold for small businesses would remain fixed at £85,000; the national living wage would rise from £7.50 to £7.83 next April; the revised system of business rates indexation planned for implementation in April 2020 had been brought forward by two years; duty on most beers and wines would freeze while “high strength, low quality” alcoholic products would incur higher taxes; £2.3bn funding for R&D; and the 300,000 homes which the government plans to build providing construction firms with new projects.

Keep in mind, however, that many of these promises are subject to change depending on how Brexit trade talks fare, with the outcomes of discussions surrounding future UK-EU trade deals, our status within or without the Union’s single market and other aspects likely to have a profound impact upon future Budgets and thus Britain’s future finances.

Viva la regulatión

Yet all this talk of Brexit and Budgets – not to mention the wealth of other financial developments which occurred abroad this year, from President Trump’s first 12 months in office to Catalonian uprisings to North Korean sanctions to the reportedly impending merger of corporation behemoths Fox and Disney – should hardly overshadow the extent to which UK and wider European financial regulation has evolved over the course of 2017 too, since these developments could come to have just as profound an impact upon businesses going forward.

Clients who’ve followed our blog content throughout 2017 will no doubt recall our investigation into how the General Data Protection Regulation (GDPR) – set to launch next May – could alter the UK recruitment industry’s trajectory next year. Indeed, the need for data protection has scarcely proven greater than today judging by recent events, not least when the string of cyberattacks plaguing firms across the world came to a devastating crescendo with the NHS’ digital crisis in May. This watershed moment prompted rapid investment in domestic cybersecurity firms, as well as the publication of the National Cyber Security Centre (NCSC)’s Small Business Guide to help SMEs protect their mainframe.

The new regulatory measures in development didn’t end there either. Few corporations will have missed the record fine imposed upon Google for breaching the European Commission’s fair competition legislation earlier this year, nor their subsequent threats of charging the online search engine’s owner Alphabet “fines of up to 5%” of its daily turnover until they complied. What’s more, Bitcoin’s rapid rise to fame as a booming crypto-currency worth over £7,000 – as of early December – has proved a similar cause for concern in the eyes of financial analysts like the Bank of England’s deputy governor Sir John Cunliffe, hence the government’s current consideration of devising further regulation to prevent Bitcoin venders trading anonymously. Stay tuned to our Knowledge Centre in the coming months for all the latest details on fast-emerging financial trends like these as and when they develop.

Find out more

We hope that you’ve found our recap of 2017’s major financial events and trends, as well as how many of these issues warrant consideration as your business prepares for the New Year. Be sure to consult our Knowledge Centre for plenty more coverage of economic news, developing trends of interest to UK firms and the services we can offer to help your business through any challenges which it encounters.

Look out for our two-part preview of what lies ahead for UK enterprises in 2018 later this month, starting with a key events calendar on December 20th followed by our expert analysis into the New Year’s business challenges on December 27th.

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