Data shows cautious optimism for 2021 but EU deal ‘gaps’ are a concern says RSM

Today RSM’s Financial Conditions Index indicated signs of cautious optimism emerging for the year ahead. But whilst the Trade and Cooperation Agreement with the EU has been largely welcomed by middle market businesses, RSM says the absence of clarity around key issues including financial services explains the lag on improving sentiment, to add to that fuelled by the global pandemic.

The firm’s Index, an aggregated performance indicator of currency, bond and equity markets, has made a slow climb, from -0.9 below normal stress levels in Q3 2020, to a reading of -0.1 today.

The climb has been bumpy, reflecting the nervousness fuelled by the further UK lockdown restrictions since Q3 and the uncertainty surrounding Brexit negotiations. Nonetheless it seems the commencement of the vaccine rollout and the fact a deal with the EU has happened is allowing businesses to take a more optimistic long-term view for 2021 that will start to accelerate during Q1 2021.

Financial Index

Simon Hart, lead International partner at RSM UK, comments: ‘Long term, the signs are improving. Our index supports the notion of a relatively improved pace of economic activity in the second half of this year linked to the national distribution of Coronavirus vaccines and a sustained increase in consumer spending near to 6 per cent. Whilst sentiment has been slow to improve, we’d expect to see the index climbing into positive territory over the coming weeks as the ongoing vaccinations progress and the impact of the EU deal moves into view.

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‘We have a real concern however around the gaps within the EU deal that haven’t yet been finalised. The financial services industry gets relatively little mention. Unknowns exist particularly around the impact of the non-continuation in ‘passporting’ and the ease of access for UK-based financial services into the EEA. The full impact on the wider professional services sector related to market access and the uncertainty remaining over professional equivalence standards with the EU is also hard to gauge. These sectors are estimated to employ over 2 million people in the UK. Arguably you could say that several key service sectors of the UK left the EU with no deal.

‘Looking to the positives, the travel, leisure, hospitality and retail sectors will all experience marked increases in consumer demand by mid/late-summer 2021 if current projections persist.

The uptick in demand in these sectors hardest hit by the pandemic will be driven by an unleashing of pent-up household savings and business activity moving towards a more solid, albeit changed, environment following a successful vaccine roll-out.’

Despite the positives, Hart ends with a cautionary note: ‘Day to day resilience and for many, survival, will still be the priority for many businesses. This will likely be the case until at least Easter when there’s hope of the beginnings of a rebound if business and customer confidence returns.’ 


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