MAJOR MACRO ECONOMIC INDICATORS

(f) Forecast

RISK ASSESSMENT

Dynamic growth led by volatile sectors

Growth in 2013 was driven by a resurgence of household consumption and a positive inventory effect, with the services and construction sectors as the leading contributors. In 2014, household consumption will remain the leading contributor to growth. The unemployment level nonetheless remains high compared to the long-term average (7.8 % in 2013 compared to 5% from 2000 to 2008). The Bank of England (BoE) has committed to maintaining an expansionist monetary policy however, as long as unemployment remains at 7% or higher, with inflation stable at 2% (±1%). According to the latest forward-looking statement from the central bank, monetary policy is unlikely to be tightened before 2015. In this context, households and investors will continue to benefit from historically low interest rates during 2014. Although household debt is at a very high level (132% of disposable income in June 2013), average net worth is also high (700% of annual income), boosted by stronger property prices (+7.5% in 2013). Consequently, consumer confidence is strong, amid anticipations of a rise in real wages in 2014. In January, the finance minister Mr Osborne argued in favour of an 11% hike in the minimum wage in the UK by 2015. Furthermore, the state is also supporting the construction sector via stimulus measures in the property market (Help to Buy). In 2013, the government ploughed almost 1% of national wealth, i.e. close to £17 billion, into infrastructure construction and home-building projects, at the same time announcing its intention to prioritise the improvement of the road network. This sector will therefore remain on a positive trend in 2014. In the manufacturing sector, production remains 15% below the pre-crisis level, similar to the beginning of the 1990s. Business manager surveys carried out in January 2014 reflect rising confidence in the UK economy over the medium term. With a strong rate of production capacity utilisation (82%), economic activity will be supported by an increase in investments, particularly the renovation of fixed capital. Loans to non-financial companies and small enterprises increased during Q4 2013. This type of credit will continue to grow during 2014, as the BoE intends to help SMEs with financing by providing cheap liquidity facilities to the lending banks. Furthermore, corporate tax will be reduced by one point (23%). The state plans to cut welfare benefits in 2014 (excluding healthcare, education and retirement pensions) and to reduce charges weighing on companies (lower employer contributions) and also lower the top income tax band (to 45% compared to 50% previously). Inflation will remain in the target range, at slightly above 2%, driven by upbeat domestic demand and increased trade with European partners.

Stronger exports in 2014

The uptick in economic activity in the euro zone (47% of exports) will accentuate positive input to growth from external trade. Growth will accelerate within the UK’s two main trading partners, Germany and the US (each representing 11% of exports). Furthermore, although British products enjoy limited price flexibility, they will nonetheless benefit from a relatively weak pound. In 2013, the exchange rate was effectively around £0.85 for 1€, compared to £0.65 from 2000 to 2007, i.e. over 20% lower. The UK current account balance remains highly dependent on financial services. The global trade deficit to GDP is approximately 7 points, whereas the services trade balance stands at a 5-point surplus. London remains the world’s leading financial market. A more rapid pace of growth among developed economies will boost UK financial services. In this context, the current account deficit will contract slightly in 2014.

The banking system remains over-dimensioned

Banks constitute a weak point in the economy. In absolute value terms, the UK banking system is effectively the third-largest in the world, after the US and Japan (£11,000bn representing 900% of GDP). In order to limit systemic risk resulting from a default or a recapitalisation of one of the majors, the UK banks have had to streamline their balance sheets. They have therefore reduced their balance sheets by almost 20% and amassed deposits in order to limit refinancing risk. The two major nationalised financial institutions in particular (RBS and Lloyds) are ahead of schedule in terms of implementing the restructuring plans imposed by the European Commission. However, banks with the strongest domestic market presence remain heavily exposed to property risk. Recent government measures supporting the property sector (the state can underwrite up to 20% of loans) could encourage banks to grant more loans and inflate the property bubble.

industries overview

Steel

After a very dynamic first half-year, during which prices rose rapidly, activity slowed at the end of last year. Demand from the construction sector, in particular, was the cause of this slackening with the prospect of a possible fall in prices. Consequently, steel makers closed plants and cut production. At the same time Chinese firms in the sector continued to press on with their steel production but also with iron ore mining in order to reduce their dependence on external supplies. Among the traditional outlets, civil engineering (apart from residential construction which could partially take off again) is not expected to recover significantly in 2012 and engineering machinery sales to European partners are expected to decline as more and more operators are turning to local suppliers in order to reduce transport costs.

Timber

Timber is the fifth largest British industry with an annual turnover of £8 billion. For the first time in three years the sector grew in the first half of 2011. This performance was not repeated in the second half of the year. Furniture sales to households and companies were affected by a fall in demand and by competition from the second-hand sector. As a result, bankruptcies in this segment have continued to rise steadily at about 15% per quarter. The recovery will be very modest in 2012 in line with the shakiness of the residential construction sector.

Automotives

The VAT rise in January 2011 had no impact on vehicle sales, manufacturers having absorbed it completely. New registrations therefore continued to progress in 2011. The big manufacturers present on the British market (VW, Jaguar Land Rover –JLR- and BMW) export 80% of production. They all recorded a sharp increase in orders during the first half of 2011, mainly because of businesses renewing their fleets. Demand has since slowed and this trend is expected to continue in the first months of 2012. Despite the slowdown, investment in the sector will increase, new factories being planned by BMW and JLR.

Construction

The economic situation deteriorated again in 2011. Bankruptcies accelerated in the third quarter, mainly affecting small cash-strapped regional firms. The situation is not going to improve in 2012 for this group of entrepreneurs or for heavily-indebted developers. Public demand, which accounted for 40% of the business, is subject to budget cuts. Orders linked to the Olympic Games are coming to an end. Moreover, the cuts expected in local authority budgets from April 2012 will affect infrastructure projects. However there are still big regional disparities. The London region is more resilient than the rest of the country, particularly the north and Ulster. Demand is still strong here, while both residential and non-residential supply is restricted by the lack of public land. But the measures adopted by the coalition government intended to favour the construction of social housing and the purchase of new housing by first-time buyers as well as to increase the availability of public land are likely to lead to more activity. Projects related to the distribution of water, electricity and renewable energy will also support the sector.

PAYMENTS

Cheques are generally used for both domestic and international commercial transactions although, for international transactions, the use of bills of exchange is preferred together with letters of credit.

Bank transfers are common with SWIFT transfers being utilised regularly. These are often seen as a quick and efficient method of payment.

Direct Debits and Standing orders are also becoming more recognised as an effective method of making payment for regular and expected financial transactions and are particularly useful for domestic transactions.

DEBT COLLECTION

The debt collection process usually begins with the debtor being sent a “demand for payment” followed by a series of further written correspondence, telephone calls and, debt value permitting personal visits and debtor meetings. Each stage of the collection process is designed to escalate from an amicable – pre-legal- collection phase towards litigation should the debtor fail to remedy the debt.

The Court judiciary consists of:

1) The County Court , has a purely civil jurisdiction.
Judges handle claim for collection of debts, personal injury, breach of contract concerning goods or property, recovery of land, family issues (divorce, adoption). Cases valued at less than GBP 25,000 (and GBP 50,000 in personal injuries cases) must start in the county court.

2) The High court of Justice,
The High Court is based in London and also has provincial districts known as “District Registries” all across England and Wales. There are  three divisions.

3) The Court of Appeal consists of two divisions: the “Civil Division” and the “Criminal Division”

4) The Supreme Court  is composed of 12 professional justices, with a president and a deputy president.

The United Kingdom has a “common law” system. (

•  The "summary judgment" (Part 24 of the Civil Procedure Rules).

To apply for summary judgment, the claimant should obtain an "Application Notice Form" from the court, which should be supported by a "Statement". In the Statement, the claimant should set out the reasons why he thinks summary judgment should be given because:
- The defendant has no real prospect of successfully defending the claim or issue,
-  There is no other reason why the case or issue should be decided by a full trial.

A copy of this statement is served on the opponent 7 days before the summary judgment hearing.

The opponent can also produce a statement this must be sent 3 days before the hearing.

The claimant cannot apply for “summary judgment” until the opponent has either returned an acknowledgment of service form or has filed a defence.

If the court agrees, they will give a favourable judgment in the case; if the court does not agree the application will be dismissed.

A) The Civil Procedure Rules

The Civil Procedure Rules / CPR (cf. Lord Woolf reform) were implemented in England and Wales, on 26 April 1999. The new rules aim to simplify and speed up the process of taking cases through the courts.

There is now an identical procedure and jurisdiction in both the County Court and the High Court.

• A number of litigation “tracks” have been created, each having their own procedural timetables. Claims are allocated to a track by a procedural judge according to their monetary value.

B) The litigation process

1) Pre-action protocols
They are transactions process which should be followed before starting an action in court. These transactions are in place to encourage parties to try to settle a dispute without the need for court proceedings, thus minimising costs and court time.

2) Proceedings are formally started when the claimant (formerly “the plaintiff”) issues a Claim Form in the County Court or the High Court.

There is a standard claim form for both High Court and County Court actions.

 . Full details of the complaint are set out in the Particulars of Claim – which is often a separate document, accompanying the Claim Form.

. The Claim Form must be served either by the court, or by the claimant, on the defendant.
The defendant then has the opportunity to respond to the claim form within 14 days of service.
An extension of time for a total of 28 days is agreed for debtor’s filing a defence and/or a counterclaim.

3) Once the parties have exchanged these formal documents, the court will order the parties to complete an “Allocation Questionnaire”.

4) Disclosure of documents
The parties will be required to make a reasonable search for documents which are relevant to the case.

The new rule states the parties should only have to disclose (i.e. provide to each other) documents which are necessary to determine the issues.
The purpose of disclosure is to prevent either party being taken by surprise in the course of the trial.
When the court requires technical evidence or expert opinion, the court may appoint a single expert to assist the judge. The court can direct the parties to appoint a single joint expert.
Experts are required to give independent evidence to assist the court.

5) Cross-examination
This is only permitted on limited issues upon application to the court where it is established that such cross-examination is necessary.
However, cross-examination of all factual witnesses and experts often is automatic and broad.
The claimant’ witnesses may be cross-examined by the opponent’s counsel and then re-examined on behalf of the claimant.

6) Freezing order (formerly Mareva Injunction)
A "freezing injunction" or "freezing order" is a special issue of interim order stopping a party from disposing of assets or removing them out of the country. Because of its severe nature, a freezing order will not be lightly granted and a condition attached to the grant of such an order is likely to be that the person who applied for it will pay full costs to the person against whom it was made, if it turns out to have been inappropriate.

7) Judgment
- The judge adjudicates on the evidence put before him and does not make his own independent enquiries.
- The judge will consider previous court decisions in similar matters (common law system) and is usually bound to follow these.
- The judge will either give his judgment immediately, or if the matter is complex, will give judgment at a later date.

An average commercial dispute may take 18-24 months to come to the judgment from the time it is first commenced.

C) Enforcement of judgment.

If the claimant is successful in obtaining a monetary judgment, but if the defendant does not pay voluntarily, the methods are:

1) The garnishee order (third party debt order).
The claimant may obtain a court order which directs a third party who owes a debt to the defendant to pay directly the debt to the claimant.

2) The charging order.
The claimant may obtain a court order which grants a charge on certain assets of the defendant (e g. property, stocks, shares) .

3) The writ of execution (execution order).
The court bailiff seizes personal goods (except essential livings items) at the defendant’s home or premises to be sold by auction and to pay off  the debt.

4) The attachment of earnings.
If the debtor has a professional activity, the claimant may apply for a court order that the employer deduct a proportion from the debtor’s wages each week or month in order to pay off the debt.

5) The winding up petition or the bankruptcy petition.

•  Insolvency Act 1986 - regularly amended.