Rates, Relocations and Religion

By Richard Pickering, Head of Futures Strategy Fit for the Future It is the prerogative of the Chancellor to have any drink he chooses during the delivery of the Budget. Philip Hammond chose still water, accompanied by a pack of cough sweets thoughtfully supplied by the PM. Was this the portent of a dull budget? Well, the rhetoric was at least relatively exciting. In an opening address almost stolen from our own mission statement, Hammond acknowledged that, ‘The world is on the brink of a technological revolution which will change the way we work and live’, and that we need to jettison the ‘failed and irrelevant dogmas of the past’ and ‘choose the future’. So what of it? Well the assessment of our near future (‘the bit with the long economicy words in it’) looks a little worse than it did, with OBR reporting dampened growth projections (1.4% in 2018). However, on a longer horizon, investment in tech was core to Hammond’s proposals, from infrastructure (5G, full fibre and AI) to the promotion of autonomous vehicles, (‘Sorry Jeremy Clarkson, but this is not the first time you’ve been snubbed by Hammond and May’). It was also a speech designed to address a perception of Conservative apathy to inequality; the Chancellor’s frequent refrain being, ‘A Conservative Government delivering… a fairer Britain’. In the end it was also a careful balancing act between fiscal prudence and a modest relaxation of austerity, squeezing the most out of the headroom created over the past year. Exit von Brexit? Most discourse about ending Brexit comes from UK Remainers unhappy with the outcome of the vote. However, others are now getting in on the act for different reasons. In a bid to encourage the UK to change its mind, a group of German business leaders and politicians are lobbying the EU to agree to David Cameron’s pre-referendum proposals on immigration, social welfare and deeper integration. Germany’s position will be influential on the Brexit negotiations, but what that position will be has become shrouded, as Angela Merkel this week gives up on her attempt to form a coalition. The Chancellor’s inability to reach a deal with a resurgent Right now points to a new election. Some have suggested that her weakened position and refocus on domestic issues also presents an opportunity for the UK. However, if Merkel were to be ousted, an unknown successor may well take a more Europhile and less pragmatic view to our negotiations. This new uncertainty comes at a challenging time for both sides. A tale of towns and cities As the pressures of living in a big city grow, it is easy for the mind to wander onto to the prospect of a better life in a small town. However, new data suggest that this idyll may be illusionary. A study by Centre for Towns shows that more than 1 million people under the age of 25 have left UK towns and villages over the past 30 years, as their working age population thins in favour of large cities. Sky polling data show that 69% of people living in towns feel that they are ‘less central to society’ (56% in cities) and 53% of town-dwellers believe that their area is worse off than others (36% in cities). In the US meanwhile, a Gallop poll identifies higher levels of well-being in big cities, based on purpose, social and financial factors, whilst smaller towns scored better for community and security. Surprising? Not really; this reflects typically changing priorities over the course of one’s life. And whilst young people bring vitality and earning to cities, older people increasingly take with them a lifetime of accrued wealth. Salvator mundi Real estate is often described as illiquid, lumpy and bearing high transaction costs. However, these measures pale when compared with investment in fine art. Add to the considerations a typical lack of any significant income (often outflows for insurance and security), fallible provenance, and a lack of regulation, and one might wonder what would encourage an unnamed buyer to pay $450m for Da Vinci’s Salvator Mundi this week. Putting aside the outside chance that they just really like art, there are various reasons which may again chime with property investors. Firstly, this is about capital gains, and so you only need be convinced that someone will one day pay more than you (the current deal represents a 4x multiple). Given that the painting sold at auction, with an underbidder not far off the chase, this might provide some comfort. Secondly from a financial perspective, art has a weak correlation with equities and so offers diversification benefits. It has also shown itself to be a good hedge against inflation. Thirdly, I’ve heard that Leonardo isn’t painting any more of these (<20 of his paintings exist) and so scarcity brings value. Finally, ego surely plays a part. The largest art investment ever will be a pretty good dinner table trophy. SUBSCRIBE TO READ THE NEXT ISSUE IN FULL Subscribe to New Europe a weekly email briefing from Richard Pickering, Head of Futures Strategy