Hampshire: Solent 250 companies hear from HSBC’s top economist

Guest speaker Mark Berrisford-Smith, head of economics at HSBC UK, shared his views on the impact Brexit is having on the UK economy at a networking event for Solent 250 companies.

The Solent 250 is an annual listing featured in The Business Magazine and sponsored by HSBC, advisory and accountancy firm RSM, law firm Irwin Mitchell and specialist recruitment group CMA Recruitment.

The event was held at the Eastleigh showroom of car dealership the Hendy Group, where Mark Busby, commercial director at the Hendy Group, welcomed Solent 250 guests.

He said: “It’s been a huge year for our business. We are celebrating 160 years and recently completed a fairly large acquisition. That now gives us 23 franchises from Exeter to Eastbourne.”

Brexit divisions

A brief hiatus in Brexit developments was about to end said Berrisford-Smith: “Nothing much has happened since April, but it will start again in June.”

From being largely absent in UK general election debates, the question of Europe is set to be a main topic of conversation for a generation.

Berrisford-Smith said: “Europe will be the issue that divides the country. It won’t be about left and right. It will be about how you stand on Europe.”

Economic impacts

While we may be stuck in “Brexit purgatory”, the economy was coping. “Fortunately, the economy seems to be moving along in reasonably good form,” he observed.

As well as Brexit, another significant threat could be the trade war between the US and China.

“Optimism on a US/China trade deal evaporated after the latest Tweets from the White House and we are now looking at trade tariffs ratcheting up,” said Berrisford-Smith. “In the end, that will cause both the US and China’s economies to slow down.”

He drew a parallel between the US/China trade impasse and the UK’s future relationship with the EU.

“The volume of trade between the US and China fell by about one tenth when tariffs were introduced. This is a good proxy for the situation between the UK and Europe in the event of a no deal and trade tariffs being imposed,” he said.

From left: George Weston of CMA Recruitment Group, Anthony Reed of HSBC, Hannah Clipston of Irwin Mitchell, Peter Laurie of The Business Magazine, economist Mark Berrisford-Smith, Mark Busby of Hendy Group, and James Tetley of RSM

Well stocked?

Economic growth in the UK of 0.5% in the first quarter of 2019 was, in part, due to companies stockpiling ahead of the original Brexit date of March 31.

“Firms have spent millions of pounds putting goods in to stock, which isn’t great for their cashflows. Financial directors up and down the country are now getting twitchy, asking to run down stock levels to release cash,” said Berrisford-Smith.

“The question is, should businesses reduce stock levels if a no deal Brexit could still happen?” he added.

Much focus has been on companies building up their inventories but this wasn’t the key driver of economic growth in the first quarter.

“It was something rather more mundane,” said Berrisford-Smith. “It was ordinary Brits going out shopping.”

The shock to sterling immediately after 2016’s vote to leave the EU has worked its way through the system and consumers are feeling more confident. Their earnings are increasing at a faster rate than inflation, so living standards are rising.

“But unfortunately, consumers are not spending on big things, like cars and houses,” he noted.

What happens next?

Berrisford-Smith thought the Bank of England was unlikely to raise interest rates any time soon. That means the outcome of Brexit is the major unknown that will affect the value of sterling.

“The fact that sterling is stable is not a symbol that markets are taking Brexit in their stride and aren’t bothered by the outcome,” said Berrisford-Smith. “Markets will react when there is more certainty on what the outcome is going to be.”

Although we’ll be stuck in Brexit purgatory for a while longer, Berrisford-Smith gave a fairly upbeat view on the economy.

“Growth in the next few quarters is unlikely to be at the 0.5% level we saw in quarter one, but the economy can keep growing. I don’t see any reason why consumers will stop spending, so long as there is a decent gap between inflation and earnings growth.

“This suggests economic growth of around 1.5% for the year is possible – no slower than 2018. Given what’s going on politically, that’s probably not a bad outcome for 2019.”

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