9 March 2017

OBR upgrades UK’s GDP growth forecast for this year, but expects slower growth in 2018

The Office for Budget Responsibility has increased the UK’s GDP growth forecast from 1.4% to 2% in 2017, falling to 1.6% in 2018 and climbing back to 2% by 2021. The OBR also suggests UK borrowing for the year 2016/17 is expected to be £16bn lower than the Autumn forecast, standing at £51.7bn.

Meanwhile, Chancellor Philip Hammond has been criticised for announcing tax rises for self-employed workers in yesterday’s Spring Budget. The Chancellor’s decision to raise Class 4 National Insurance Contributions for the self-employed is expected to affect 2.5 million people in the UK, who are estimated to lose on average £240 a year. The move contradicts a Conservative manifesto promise not to raise VAT, national insurance contributions or income tax. Other budget initiatives include reducing corporation tax to 17% by 2020, investing an additional £2bn in social care, and offering business rates relief. The Chancellor said, “This budget takes forward our plan to prepare Britain for a brighter future. It provides a strong and stable platform for [Brexit] negotiations.”

Source: The Times The Financial Times The Press Association

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Trade agreement with the EU is a priority for New Zealand, says trade minister

New Zealand Trade Minister, Todd McClay, has said, “A high-quality trade agreement with the EU is a priority for us, but so is our relationship with the UK.” However, he added the UK “can’t take on obligations until Article 50 [negotiations] have been completed…Trade agreements are never negotiated quickly and you know they are complex.”

Separately, former Treasury minister Lord O’Neill has called plans to court the Commonwealth for post-Brexit trade “embarrassing.” He continued, “Greece is bigger than New Zealand. Banging on about a free trade deal with New Zealand is going to make zero difference to Britain’s future in terms of trade” and instead the UK should look to the ‘BRIC’ nations of Brazil, Russia, India and China for opportunities. He argued that the decision to leave the EU single market was a “reality check which the government is choosing to ignore,” adding, “If we’re cutting ourselves off from the most skilled people from around the world in key industries and most importantly in our universities, where arguably Britain does have a global edge, it’s kind of madness.”


US insurer AIG to set up subsidiary in Luxembourg to retain ‘passporting rights’ after Brexit

US insurer AIG confirmed yesterday that it is going to turn its branch in Luxembourg into a subsidiary so that it will be able to serve clients across the EU from there after Brexit. The move is due to concerns that AIG’s European headquarters in London could lose ‘passporting rights’ as a result of the UK leaving the EU. However, the company has said it plans to maintain a significant presence in London and has refused to specify how many employees will need to move to Luxembourg. The Financial Times quotes a spokesperson for AIG as saying, “Establishing a new company in Luxembourg will result in some changes at a Europe senior leadership level but wider impacts are expected to be minimal. There will of course be some positions to fill in our Luxembourg operation but this will be a gradual process over the next two years.”

This comes as the chairman of insurance lobby group the London Market Group (LMG), Nicolas Aubert, said it is “crucial” that the post-Brexit trade deal allows UK and EU insurers and reinsurers to operate across borders. In a statement Aubert said the LMG was working with the UK government to seek “existing precedents in current international agreements which could be used for Brexit negotiations to support our industry.” The LMG has also urged that regulatory equivalence be maintained in the new trade deal and confirmed that it is seeking a transition period to implement any new arrangements post-Brexit, during which time UK insurers would keep single market access.


American Chamber of Commerce to the EU highlights single market value to US firms in UK

The Guardian quotes a report from the American Chamber of Commerce to the EU that reads, “America’s significant commercial and financial presence in the UK has been premised in large part on UK membership in the EU the largest, wealthiest and most important foreign market in the world to US companies,” adding, “The primary motivation of many US companies to invest in the UK has not been to serve only the UK market but to gain access to the much bigger EU single market.” The report argues that many US firms with presence in the UK “will probably choose another entry point to access the single market in the future. This will make a huge difference with regards to London’s role as a financial hub, may accelerate the rise of other European financial centres, for instance Frankfurt, and will reinforce US interest in strong and predictable financial services procedures with the EU. It will also affect the US approach to financial services in any US-UK arrangement.”

This comes as Alexander Börsch, Deloitte’s chief economist and head of research, told Handelsblatt that German business must consider both opportunities and risks posed by Brexit, saying “The British market is the second-largest market in the EU, no business that exports can afford to ignore Brexit. The risk posed by Brexit is historically singular, which makes it extremely difficult to predict the outcome.” He added, “This is not just about the relocation of production. Think about data security requirements. After Brexit, Britain will be considered a ‘third country’, and it remains unclear what data will be transferable. The changing regulations will most likely increase administrative fees and costs.”


Poland heads for showdown over re-election of Tusk as European Council president

Polish Prime Minister Beata Szydło has written a letter to her EU counterparts reiterating opposition to Donald Tusk being elected for a second term as European Council President at today’s meeting of EU leaders. She argued, “President Tusk has failed to demonstrate adequate impartiality. He used his EU function to engage personally in a political dispute in Poland. We cannot accept such a conduct. We cannot allow for this dangerous precedent to be created where a democratically elected government of a Member State is attacked politically by the President of the European Council. I believe that if a similar situation concerned any other EU Member State, the reaction would be equally unequivocal and decisive.” This comes as the Deutsche Presse-Agentur (DPA) reports that, according to German government sources, Chancellor Angela Merkel will back Tusk for a second term.


Hungarian minister: EU should avoid being back of the line for Britain

Hungary’s Foreign Minister Peter Szijjártó has said, “We need to avoid a situation whereby the EU goes to the back of the line for Britain…Losing such a partner and giving it away to others would be a suicidal strategy.” He suggested the EU’s goal should be “to have the lowest possible tariffs and certainly tariffs that are lower than anyone else will offer Britain.” Szijjártó added, “We can’t create a situation where Britain is better off trading with the Americans, Turks, Indians, Australians or Japanese.”


Austrian Chancellor calls for less funding for EU countries that refuse to accept refugees

The Austrian Chancellor, Christian Kern, has told German daily Die Welt that, “In future, the money from the EU budget must be distributed more equally among the member countries. If countries continue to duck away from resolving the issue of migration, or tax dumping at the expense of their neighbours, they will no longer be able to receive net payments of billions from Brussels.”


EU to use Rome summit to say individual countries “would be sidelined by global dynamics”

Ahead of the Rome summit later this month to celebrate the EU’s 60th anniversary, The Guardian has seen a working draft of the EU’s declaration. The draft says, “We are determined to make the EU stronger and more resilient; we need to show even greater unity and solidarity among EU member states. Unity is a necessity, not an option…Taken individually, we would be sidelined by global dynamics. Standing together is our best chance to influence them, and to defend our common interests and values.” The Rome summit will be held on 25 March.


Pret A Manger would struggle to replace non-UK employees

Andrea Wareham, director of Human Resources for Pret A Manger, told the House of Lords Economic Affairs committee, “I would say that one in 50 people that apply to our company to work is British. If I had to fill all our vacancies in British-only applicants I would not be able to fill them… because of a lack of applications.” She added, “I actually don’t think increasing pay would do the trick, I can only talk for Pret on this, but we do pay well above the National Living Wage, we do have great benefits and we offer fantastic careers. It really is a case of do people want to work in our industry? We are not seen always as a desirable place to work and I think that’s the trick.”


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