Earlier this week I set the scene before a very knowledgeable panel of experts tried to predict how the real estate sector will perform to an audience of over 400 industry leaders. At last year’s event 80% of the delegates put up their hand when asked if they thought the UK would vote to Remain in the UK.
When Simon Jack, the BBC’s Business Editor who kindly moderated this year’s Q&A session, asked the audience for their collective wisdom once again as to ‘whether a Trump presidency would be good for the UK property sector?’ half put up their hands voting ‘Not Sure’.
So, for the record, what does JLL UK think will happen?
We believe 2017 will bring no real clarity on the eventual Brexit deal.
Media and markets alike will be dominated by speculation over the terms of Brexit throughout the year, particularly after Theresa May activates Article 50 in March. Indeed, this – and other key events or announcements throughout two-year negotiation process – could lead to fresh bouts of volatility in the currency markets and beyond, albeit not on the scale of those seen after the vote itself.
However, with the French and German elections dominating the agenda on the continent, there is likely to be little real progress, or any end to the chronic uncertainty. This will be compounded by the European Union being determined to focus on the issues around the UK’s departure – such as those around future liabilities, staffing and so on rather than the shape of a future trade deal. The one exception to this will be a potential transitional deal, removing the threat of a ‘cliff edge’ in which business has to adapt overnight to new customs and regulatory arrangements. This will depend on the ability of politicians on both sides of the table to maintain good relations. This is by no means a certainty given the stakes and the pressure from the media and public and the unstable political situation on the continent and in the US.
The UK economy will grow less strongly than in recent years but will still outperform most other developed nations.
Despite the prolonged uncertainty produced by the negotiations around Brexit, the UK economy will continue to surprise on the upside throughout 2017. Even though performance will be muted by the standards of recent years, it will continue to see growth at least on a par with a resurgent Eurozone – if not outpacing it. Confidence may begin to wane as the year progresses and some of the negative impacts of Brexit begin to take hold, but they are likely to be concentrated in certain sectors, such as retail and construction – where innovation and structural change will be accelerated.
Financial services will remain the sector most concerned about the outcome of the negotiations. There may well be some high-profile relocations to the continent, but their scale will be relatively small.
Rising inflation – and potentially, market interest rates – will be the main economic story of 2017, and may start to affect the Brexit debate.
The falling pound has been, so far, positive for the UK economy – helping to support manufacturing exports and stimulating tourism, to the benefit of London retail and hospitality. During 2017, the negative side of this story will begin to emerge, as hedging mechanisms expire and import prices increase. The most obvious impact will be on retail, where companies will be forced either to pass on the increase, reduce their margin, or perhaps both. Alongside rising fuel prices, this could start to impact on wider business confidence.
As consumers begin to feel the pinch, the terms of the Brexit deal could begin to change – assuming, of course, that Eurozone politics and economics remain relatively stable throughout the year. If the situation deteriorates – and relations between the US and the UK remain strong – Britain could strengthen its status as a safe haven.
You can download a pdf of all our sector-specific predictions here. Please do, and let me know whether you agree, or disagree with us!
Happy New Year