The UK Economy: Short-Term Prospects
by Ian Selby, Head of Nexus Trade Credit, UK.
by Ian Selby, Head of Nexus Trade Credit, UK.
As we reach the half-way point of 2021 we thought it worth reflecting on how the first six months of the year have gone and, more importantly, how we expect the rest of 2021 to pan out for the UK.
2021 So Far
Going into the New Year we were faced with the twin issues of the ongoing pandemic and the end of the transition period for leaving the EU. I think it is fair to say the fall-out from these have been about as good as we could have hoped for.
We have successfully moved to the end of the government reinsurance scheme. Although it has served its purpose well — indeed we must be one of the few profitable support packages the Government has experienced with the private sector — I am sure I am not alone in looking forward to life without the Government in the background, and back towards normal life operating as a fully independent commercial enterprise.
As for Brexit fall-out, so far, our experience has been relatively muted. There has been justified grumbling from some quarters about disruption — fisheries being a stand-out example — but any failures we have seen that have cited Brexit-related issues have tended to have other fundamental issues already. Like we often see with insolvencies, an external shock may have been the final straw, but weaknesses were in place with the business already. Instead we have seen insureds looking for opportunities in the post-Brexit world: either filling in gaps where imports have become more expensive, or looking to exploit competitive advantages from the new trading regime. Those that are adapting more quickly are taking the edge over their competitors.
The Next Six Months
So, we have successfully navigated our way through the first half of the year, but what can we expect over the second half of this year?
First and foremost is the move to a post-Covid normality. We are yet to truly understand what will just return to how it was, and what areas of the economy have been through a fundamental shift in behaviour.
Partial working from home seems to be here to stay, as does the move to the online world for retail. Neither of these things are particularly new but have undeniably jumped ahead 5-10 years due to the pandemic. The impact of this will affect different industries in different ways. Travel and associated trade is an obvious example of heightened risk, be that the rail companies themselves or the coffee vendors which support them. But there is also a lot of opportunity as part of this. A more localised economy may help small businesses on the local level, and that has to be a good thing. As another example, something like office construction is a bit more difficult to call. With less office space needed then there surely should be a decline in new office space being built? Not necessarily. There is still a high demand for more modern and more environmentally friendly office space. I would probably be worried if I was sitting here as a landlord for a 1970s block in a city centre, but would I be worried as a main contractor for high-end office space? Not judging by order books for new buildings. There is still plenty of demand out there, it is just that the focus of the demand has changed from where we were eighteen months ago. The successful businesses will be those which adapt quickest to the changes and take the opportunities presented.
The Employment Paradox
One potential drag on this, however, is restrictions on labour supply. Government support through the furlough scheme has seen forecasts for unemployment well overplayed to date. We should, realistically, expect to see unemployment increase in aggregate with the unwinding of furlough, but this doesn’t tell the whole story. Whilst there is anecdotal evidence of 200 job applicants for an office job in a city centre, we are also hearing reports of zero interest for manual labour jobs – indeed team lifts of manual labourers have been happening. We may be faced with the dual position of rising unemployment and increased levels of job vacancies. There might be plenty of job opportunities out there: just different kinds of jobs to those available pre-pandemic.
Brexit of course adds an extra layer of complexity to this. Although there has been talk of relaxing rules for foreign labour, it remains to be seen whether any action will be taken. This could have long-lasting implications right across the UK economy. Wage increases may happen as a result (no bad thing for individuals) but it will put pressure on margins. Add to this increased cost of importing raw materials and manufactured goods, and we could see the true economic cost of Brexit being borne by UK companies. There are of course significant other political costs involved with Brexit — Northern Ireland in particular — but that is a discussion for another time.
Cause for Optimism?
That said, there is reason for optimism. Supply chains have proved remarkably resilient during the lockdown period. Unlike 2008, it feels like there has been a real willingness to work together which has been encouraging to see. Also, the Government has by and large got the economic response to Covid right. Again, unlike 2008, monetary policy is not being viewed as the way out of the downturn. All the noise is instead around a fiscal response. The obvious winner from this will be our construction industry but the benefits will be felt across the whole of the economy.
Overall, we have a long way to go on the path to recovery but we should be pleased with the work done by the industry so far. At Nexus we are looking forward to the future and supporting the industry through our whole turnover, non-can, and top-up products.
Going into the New Year we were faced with the twin issues of the ongoing pandemic and the end of the transition period for leaving the EU. I think it is fair to say the fall-out from these have been about as good as we could have hoped for.
We have successfully moved to the end of the government reinsurance scheme. Although it has served its purpose well — indeed we must be one of the few profitable support packages the Government has experienced with the private sector — I am sure I am not alone in looking forward to life without the Government in the background, and back towards normal life operating as a fully independent commercial enterprise.
As for Brexit fall-out, so far, our experience has been relatively muted. There has been justified grumbling from some quarters about disruption — fisheries being a stand-out example — but any failures we have seen that have cited Brexit-related issues have tended to have other fundamental issues already. Like we often see with insolvencies, an external shock may have been the final straw, but weaknesses were in place with the business already. Instead we have seen insureds looking for opportunities in the post-Brexit world: either filling in gaps where imports have become more expensive, or looking to exploit competitive advantages from the new trading regime. Those that are adapting more quickly are taking the edge over their competitors.
The Next Six Months
So, we have successfully navigated our way through the first half of the year, but what can we expect over the second half of this year?
First and foremost is the move to a post-Covid normality. We are yet to truly understand what will just return to how it was, and what areas of the economy have been through a fundamental shift in behaviour.
Partial working from home seems to be here to stay, as does the move to the online world for retail. Neither of these things are particularly new but have undeniably jumped ahead 5-10 years due to the pandemic. The impact of this will affect different industries in different ways. Travel and associated trade is an obvious example of heightened risk, be that the rail companies themselves or the coffee vendors which support them. But there is also a lot of opportunity as part of this. A more localised economy may help small businesses on the local level, and that has to be a good thing. As another example, something like office construction is a bit more difficult to call. With less office space needed then there surely should be a decline in new office space being built? Not necessarily. There is still a high demand for more modern and more environmentally friendly office space. I would probably be worried if I was sitting here as a landlord for a 1970s block in a city centre, but would I be worried as a main contractor for high-end office space? Not judging by order books for new buildings. There is still plenty of demand out there, it is just that the focus of the demand has changed from where we were eighteen months ago. The successful businesses will be those which adapt quickest to the changes and take the opportunities presented.
The Employment Paradox
One potential drag on this, however, is restrictions on labour supply. Government support through the furlough scheme has seen forecasts for unemployment well overplayed to date. We should, realistically, expect to see unemployment increase in aggregate with the unwinding of furlough, but this doesn’t tell the whole story. Whilst there is anecdotal evidence of 200 job applicants for an office job in a city centre, we are also hearing reports of zero interest for manual labour jobs – indeed team lifts of manual labourers have been happening. We may be faced with the dual position of rising unemployment and increased levels of job vacancies. There might be plenty of job opportunities out there: just different kinds of jobs to those available pre-pandemic.
Brexit of course adds an extra layer of complexity to this. Although there has been talk of relaxing rules for foreign labour, it remains to be seen whether any action will be taken. This could have long-lasting implications right across the UK economy. Wage increases may happen as a result (no bad thing for individuals) but it will put pressure on margins. Add to this increased cost of importing raw materials and manufactured goods, and we could see the true economic cost of Brexit being borne by UK companies. There are of course significant other political costs involved with Brexit — Northern Ireland in particular — but that is a discussion for another time.
Cause for Optimism?
That said, there is reason for optimism. Supply chains have proved remarkably resilient during the lockdown period. Unlike 2008, it feels like there has been a real willingness to work together which has been encouraging to see. Also, the Government has by and large got the economic response to Covid right. Again, unlike 2008, monetary policy is not being viewed as the way out of the downturn. All the noise is instead around a fiscal response. The obvious winner from this will be our construction industry but the benefits will be felt across the whole of the economy.
Overall, we have a long way to go on the path to recovery but we should be pleased with the work done by the industry so far. At Nexus we are looking forward to the future and supporting the industry through our whole turnover, non-can, and top-up products.
About the Sponsor: Nexus Trade Credit
Nexus Trade Credit offer a range of solutions to cover the requirements of suppliers, subcontractors, service providers and importers/exporters for business–to-business transactions against trade credit risks.
The client may have a policy in place already or may be looking to insure a specific requirement that does not fit within their existing programme.
In addition, we provide products that enhance companies’ credit management including First Limit, a service offering real-time credit opinions and 24/7 monitoring and, in the UK only, First Collect, a highly regarded debt collection service in partnership with STA International.
We currently operate from offices in the UK, Germany, Netherlands, France, and the USA. We specialise in Whole Turnover, Non-Can and Top-Up policies, and can also consider cover on an XoL and Key Buyer basis.
Nexus Trade Credit is backed by several leading Insurance Companies and Lloyd’s syndicates, enabling us to offer policies with very strong ratings.
Nexus Trade Credit is part of the Nexus Group, a leading, independent, specialty Managing General Agent (MGA) group based in London with a focus on niche insurance classes of business. Nexus employs over 300 staff and is represented in nine countries: UK, Ireland, France, Germany, Italy, The Netherlands, USA, China (Hong Kong SAR) and Malaysia (Labuan FT).
In addition, we provide products that enhance companies’ credit management including First Limit, a service offering real-time credit opinions and 24/7 monitoring and, in the UK only, First Collect, a highly regarded debt collection service in partnership with STA International.
We currently operate from offices in the UK, Germany, Netherlands, France, and the USA. We specialise in Whole Turnover, Non-Can and Top-Up policies, and can also consider cover on an XoL and Key Buyer basis.
Nexus Trade Credit is backed by several leading Insurance Companies and Lloyd’s syndicates, enabling us to offer policies with very strong ratings.
Nexus Trade Credit is part of the Nexus Group, a leading, independent, specialty Managing General Agent (MGA) group based in London with a focus on niche insurance classes of business. Nexus employs over 300 staff and is represented in nine countries: UK, Ireland, France, Germany, Italy, The Netherlands, USA, China (Hong Kong SAR) and Malaysia (Labuan FT).
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