Institutional investors face growing concerns about Brexit impact

15 August 2016 Consultancy.uk

The effects of a Brexit are starting to make themselves felt, with a political implosion, the collapse of the sterling and lingering uncertainty for businesses on both sides of the channel. A recent survey reveals that institutional investors are facing growing concerns about the potential economic consequences on the UK and Europe’s mainland.

The referendum results sent shock waves through the UK and global markets, dragged the pound to its lowest level since the 1980s and caused considerable consternation among the UK’s young people. Politically, the event has so far seen the end to a number of political ambitions, and the rise of a new prime minister.

For many businesses, the event has, in a certain sense, only just begun. Considerable uncertainty looms, according to a study conducted by FTI Consulting, among 100 global institutional investors with more than $8 trillion in assets under management. The overarching outcome is clear: negative consequences for both the UK and the EU are feared.

Economic impact on UK post Brexit

Institutional consequences
The impact of UK’s leave vote is expected to be substantial for a range of key economic and financial phenomena. The outlook, following the triggering of article 50, would, according to 50% of respondents, see a slight decrease in the value of the pound versus the dollar, while 35% say it would decrease substantially. The UK’s trade with the EU is also likely to suffer, with 57% seeing a slight decrease while 20% expect a substantial decrease. The UK’s economy is also expected to undergo a slight contraction, according to 61% of respondents, while 17% expect a substantial contraction. 

The respondents also believe that one of the consequences will be an increase in inflation – 59% cite a slight increase and 13% a substantial increase. One positive note is that UK trade outside of the EU is set to increase, according to 41% slightly and by 17% substantially.

Brexit impact on EU countries

One of the issues that received little attention during the debate is the negative effect that the UK leaving may have on its former European partners. France, according to the respondents, will take the biggest hit: 71% believe that the decision harms the country economically, while 9% only believes it will in the long run benefit the country. Germany too takes a hit, 64% believe it will be harmed by the move, relative to 16% that say that there will be an improvement.

Spain, Italy, Greece, Ireland, Portugal, Poland, Belgium and Sweden all take relatively significant hits. 56% of respondents believe that none of the EU countries are benefitted by the UK leaving.

Likelihood of Post Brexit Events

The research also considered the investors’ opinion on the likelihood of a range of post Brexit events. 96% believes that the government will take steps towards leaving, with 89% of those respondents are monitoring the situation. 85% also believe there will be a new round of Quantitative Easing (QE) from the Bank of England (which to an extent already has been triggered), with 72% monitoring the situation. 55% of respondents think that the EU will punish the UK, should they enforce the decision – 40% believe this is unlikely.

The majority (53%) of the respondents are not confident that the UK will retain access to the single market – 38% believe that access will be retained, while 9% don’t know. 49% of respondents also believe that companies will depart from the UK to Europe’s mainland, while 60% believe that the low sterling will see a rise in the number of M&A deals. Interestingly, two thirds of respondents believe that the UK would retain its financial centre status, despite all the warnings sent by large banks and insurers that they are reconsidering where they should be headquartered in Europe.  

Likelihood of UK leaving EU

FTI’s survey further asked respondents whether they think that the government should trigger article 50, and leave the EU, following the non-binding referendum outcome. 34% of respondents would rather see the government try to renegotiate its EU membership terms, while 17% say that the government should ‘delay the processes at each opportunity to maintain the present membership’. Latest insights in the political arena reveal that the UK may be aiming for the latter tactic, with 2019 rumoured to be the year in which the UK will formally leave the EU. 7% of the respondents say they don’t know. 

“The results indicate grave concerns regarding Brexit’s implications for the UK and EU economies in particular,” reflects Edward J. Reilly, Chief Executive Officer of the Strategic Communications practice of FTI Consulting. “This will be a continually evolving process, with many uncertainties and complexities that have wide-spread impact on capital markets activity, corporate business decisions and the political discourse across numerous jurisdictions. We are counselling our clients to remain engaged, stay updated on the current state of play and to be nimble in adjusting to changing market forces.”

Effects on portfolio over next 12 month

Other major events
While a Brexit has global consequences, a number of other events taking place may too have worrying consequences. The top concern is the US election, cited by 53% as likely a concern for their portfolio. Donald Trump winning the election in the US is seen as likely and concerning by 27% of respondents, likely but not concerning by 11%, and unlikely but concerning by 49%.

Another major fear is a recession in the UK, cited by 51% as likely and concerning and by 16% as likely but not concerning. UK banks not having access to EU is cited by 47% of respondents at likely and 65% of respondents as concerning. A general election in the UK is seen as likely by 62% of respondents, although only 48% see it as a concern.

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Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”