Brexit Tracker: Funding Circle Thrives, Retailer Cuts Bonuses, VC Funding Rebounds?

This week displayed many ups and downs for the post-Brexit economy in the U.K. From big funding news to big cuts to bonuses, this week’s Brexit Tracker continues to track how Britain’s decision to exit the European Union (EU) is impacting business across industries.


Funding Circle Scores $100M

Despite the cloud of uncertainty, Funding Circle has done what no other online lender thought was possible in the U.K. economy since the Brexit decision became a reality last year — securing $100 million in private equity funding.

In a statement on Thursday (Jan. 12), the company said California-based venture capital firm Accel Partners led the funding round, with participation from Index Ventures, Union Square Ventures and Temasek Holdings.

The news comes at a time when many British peer-to-peer lenders have been concerned about the future of their businesses post-Brexit. But it looks as though Funding Circle, the biggest online lender for small businesses in the U.K., has been able to maintain the attention of investors even as Brexit looms.

The funding announcement may even serve as a ray of light for the industry.

Many believe that the Bank of England’s decision to lower interest rates last August helped to urge retail investors to seek out profits from peer-to-peer loans. Others believe that investors stopped making moves in the months leading up to the Brexit vote last year but have since ramped up investments because the British economy is doing much better than economists expected.

Either way, Bloomberg noted that Funding Circle’s lending has grown by one-third since the referendum last June.

Earlier this month, the online lending platform received an investment of £40 million from British Business Bank, the state-owned bank, to be used solely for lending to SMBs.


Brexit Hits The Pocketbook

British retailer John Lewis said that its employees will face smaller bonuses due to the lingering impacts of Brexit. The company announced it would have to cut bonuses for its 90,000 workers as it succumbs to inflationary pressures and increased competition.

While the holiday season was successful for many U.K. retailers, Bloomberg reported that the year ahead is looking difficult.

The employee-owned John Lewis partnership said that the rising inflation caused by Brexit, as well as the increase in online competition, has given way to more pressure on earnings. The owner of the department stores explained that it plans to make “significant” cuts to its annual staff bonuses as a result, Bloomberg confirmed.

“We expect both inflationary cost pressures and competition to intensify in the market as a whole,” the company said in a statement. “The rate of retail market sales growth may slow, and the rate of profit growth that is achievable will be affected by margin pressure.”

John Lewis Chairman Charlie Mayfield added that last year’s Brexit vote is a particular concern for the year ahead.

“The drop in sterling is a dog that hasn’t yet really barked,” Mayfield explained. “Lots of retailers have hedged their currency positions, and they will gradually unwind over the next year. How much of that inflationary pressure is absorbed by retailers and how much is passed on is the million-dollar question. It’s one of the most significant factors hanging over the year ahead.”


The Real Deal With VC Funding

Though there are varying predictions about the impact Brexit will have on European economies once the split occurs, for now, the eurozone economy demonstrated a surprising growth spurt at the end of 2016.

According to Reuters, industries across the eurozone boosted industrial output by 1.5 percent on the month and 3.2 percent year on year leading up to Christmas last month.

Economists said the latest figures support the argument that gross domestic product in the eurozone picked up in the last quarter of last year.

But the jump in economic activity hasn’t improved the outlook for 2017.

“We expect rising inflation to weigh on consumer spending growth, causing overall GDP growth to slow in 2017,” Jack Allen of Capital Economics told Reuters.

On the bright side, the U.K.’s technology sector raked in more investment than other European countries, measuring more than £6.7 billion ($9.5 billion) in investments in tech firms within the country in 2016 across private equity and venture capital deals.

The research, from London & Partners, the Mayor of London’s promotional company, also reinforced that the U.K. remains an attractive option for investors even after the EU referendum vote.

London Mayor Sadiq Khan said: “With our unbeatable blend of talent, creativity and access to finance, it is not surprising that London continues to go from strength to strength as the undisputed tech capital of Europe. Despite the Brexit vote, the capital continues to attract record levels of investment and remains the best place in the world to grow a business. I have no doubt that this important sector of our economy will continue to generate jobs, investment and world-leading technology for decades to come.”

However, Business Insider claimed London & Partners put a positive spin on the data, which also shows that VC investment in U.K. tech companies still fell significantly when compared to the amount of funding distributed in 2015.

London & Partners reportedly confirmed the decline — which totaled a fall of nearly £80 million between 2015 and 2016 — to Business Insider but noted that VC funding is complemented by private equity funding.



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