23 January 2020

Into the unknown

With our departure from the European Union just a few days away, markets are understandably subdued.


Recent economic data has been somewhat mixed. Retail sales over the Christmas period were disappointing, but employment continues to be robust, with a new record achieved in terms of the number of people in work. This was largely driven by a rise in the employment of women – due in part to the rise in their retirement age – but we are still doing better than our European counterparts.

Also encouraging was the CBI’s industrial order expectations, which came in above forecasts. This helped sterling which has received renewed support against the euro. Quite where the pound might end up by the end of the year is anybody’s guess, but a stronger pound is not necessarily good for the UK’s benchmark FTSE 100 Share Index. On the other hand, exports could benefit from increased uncertainty over sterling’s correct level. We will have to wait and see.

On the global scene, the Davos Economic Forum is in full flow this week. The focus is on climate change, but with the US sceptical about whether this is a real issue, it is probably unlikely much in the way of real progress will be achieved. Meanwhile, France has pulled back from the brink over its trade differences with the US and the International Monetary Fund has published a modest downward revision to its growth expectations for the year just ended and the year to come.

Back home, the collapse of the Beales department store group into administration underscores the difficulties experienced in the high streets of Britain. The world has changed much and it remains difficult to see what the town centre of the future might look like in a decade or so’s time. In America, where such developments are of less consequence, share markets hit new highs recently. It’s an ill wind…

At least trade wars seem to be subsiding, though they have not vanished altogether, with President Trump continuing to use tariff hikes as his main weapon against those he views as working against the US. Meanwhile, although we will have left the EU soon, the transition phase of our relationship will be in place, so nothing much is expected to change in the near term. However, expect the negotiations over our future relationship to dominate sentiment in the months ahead. After all, we have no idea what sort of deal might be reached – or even if one is possible in the time available.

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