Chris Beckett, head of research at Quilter Cheviot, said that with only 17 months to go in which to secure a trade deal with the European Union, UK companies were putting off decisions about investment in their businesses.
‘The uncertainty is making it very difficult for companies when they do not know if they will be facing a ten per cent tariff,’ said Mr Beckett, adding that investment in car manufacturing had fallen by 80% over two years.
Although the UK economy had held up relatively well, the consumer segment was weak, with families having less disposable income, said the researcher. ‘Two years ago the average family had £20 more a week to spend. There have been a number of profit warnings from consumer-facing businesses – this is not an environment in which the average company can do well.’
Referring to the forthcoming UK Budget on 22 November, he said one of the challenges was an 87% debt to GDP ratio. ‘The government has not got the benefit of consumer spending, or government spending, or business investment, and there is still too much borrowing.’
In addition, he observed that the current UK government was ‘very weak’, with a number of cabinet ministers being replaced and recent scandals likely to force bi-elections, or even the risk of another general election before too long. ‘There is potential for a new government and new policies, which is a risk for investors,’ said Mr Beckett.
‘If businesses knew what the final trade terms would be following Brexit, we would see a rebound, but at the moment we remain very cautious.’
Globally, however, the past nine years since the global crisis had been ‘exceptional’, particularly for investors in overseas equities who stood to gain a total return of over 285%. ‘There have been exceptional returns wherever the investment, but can this continue?’ he asked. ‘We say yes, it can, although there are risks.’
Global growth for the next few years was forecast at around 3% or above. ‘Every main economy of the world is growing at the moment, although at slightly lower levels in the UK.’
Despite a ‘weird and wacky’ approach, US President Donald Trump was ‘not all bad’ in attempting to simplify tax and put more money in consumers’ pockets. ‘There is a lot of money that is currently offshore that could go back into the US – including Apple – if the disadvantages of the current tax system are reversed,’ said Mr Beckett.
European economies, too, were not such a ‘basket case’ as had been thought, with German business confidence at an all-time high, although political risks such as Spain had not been anticipated. Nevertheless, the European economies were now growing, there were jobs and spending was rising. ‘Overall, Europe is a good place to invest,’ he said.
‘What we like to see are companies making high profits, so we are neutral on the UK but overweight on European and US equities.’
Also speaking at the roadshow was Tim Childe, Quilter Cheviot head of international and the Jersey office, David Denton of Old Mutual International and Quilter Cheviot investment director Lee Morris.
