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Economic bilateral relations

 

Economic bilateral relations

The UK’s economy (the fifth-largest in the world and the second-largest in Europe) is led by the service sector, which accounts for over three-quarters of the UK’s GDP. Industry accounts for approximately 21%, while agriculture plays only a minor role (less than 1%).

The UK’s attractiveness as a destination for financial and commercial activities and foreign investment remains high, despite the slowdown that followed the June 2016 referendum on leaving the EU (with a GDP growth of 1.9% in 2016 and 2017 and 1.4% in 2018).

The country offers numerous business opportunities, thanks to a number of factors, particularly the importance of London (which accounts for over 12% of national GDP) and its financial sector (the City).

The UK also offers a business environment that favours entrepreneurship, characterised by low barriers to entry; a simple, coherent set of regulations; very competitive corporate tax rates (currently 19%, due to be reduced to 17 in April 2020), and a system of direct and indirect incentives to encourage technological research and innovation.

The changes following the referendum in June 2016 in which the British population voted in favour of leaving the European Union and the subsequent uncertainties in the complex negotiation process have given rise to a climate of uncertainty on the future growth path of the country. In order to contain the foreseeable systemic shocks, the Bank of England lowered interest rates to 0.25% in 2016 as a stimulus measure, subsequently raising them gradually to 0.75% by autumn 2019. There is also uncertainty around the future nature of bilateral trade relations, which will become clear only at the end of the Brexit negotiations, which began in March 2017. The true impact of the UK’s departure will become clear only after the terms of departure are finalised.

One of the first effects of the Brexit vote was the depreciation of sterling. Since June 2016 it has fallen by approximately 14% against the euro and approximately 18% against the dollar.

In terms of trade flows, Italy is eighth on the ranking of the top countries from which the UK imports and the ninth on the list of countries to which it exports. The UK, meanwhile, is tenth on the list of countries from which Italy imports and fifth among the countries to which it exports. Italy has a strong trade surplus with the UK (€23.4m of exports versus €11.1m of imports in 2018), and Italian exports to the UK have grown continuously since 2012.

A study by ICE-Prometeia drew up projections on the possible impact of Brexit on trade, which show that the overall loss for Italian exports could be between €800m (4% of the total) and €4bn (21%), depending on the model of economic partnership that emerges.

As well as being, as mentioned above, Italy’s fifth-largest export market by volume (after Germany, France, the US and Spain), absorbing 5.1% of Italian exports in 2018, the UK is the second-largest by value, with Italian exports to the UK worth €12.3bn in 2018.

Specifically, according to the Italian Trade Agency, Italian exports to the UK in 2018 rose by 1.1% relative to the previous year, continuing a positive trend that began in 2012, while imports from the UK rose by 1.3%. Relative to the first quarter of 2019 Italy had a trade surplus with the UK of £2.3bn, slightly higher than the £1.9bn in the same period in 2018.

Italy’s top exports to the UK are machinery (€2.5bn in 2018), followed by automotive products (€1.3bn), clothing (€1.2bn), pharmaceuticals (€1bn) and beverages (€1bn). The UK’s top exports to Italy, meanwhile, are automotive products (€1.5bn), pharmaceuticals (€0.9bn), machinery (€0.5bn) and chemicals (€0.45bn).

The top sectors in which Italy invests in the UK are energy (largely thanks to ENI and its subsidiaries), defence (represented primarily by the Leonardo group), vehicles (the Fiat Chrysler group) and electrical appliances (the Merloni group [branded Indesit], the Candy group [Hoover] and the De Longhi group [Kenwood]).

Other Italian companies worth mentioning include Prysmian, Tratos, Seda Packaging Group, Bifrangi, Zambon (which acquired the British company Profile Pharma), Assicurazioni Generali, TerniEnergia, Green Network, Reflex&Allen, Mapei, Digital Bros, Kinexia and Laminazione Sottile. Investindustrial, an Italian investment fund, also invested in Aston Martin.

A number of prestigious fashion and design brands have also made significant investments in the British market, opening showrooms and retail outlets in the UK, particularly in London. These include Armani, Versace, Prada, Loro Piana, Brunello Cucinelli, Dolce & Gabbana, Max Mara, Bulgari, Ermenegildo Zegna, Tod's, Furla, Sergio Rossi, Natuzzi, Scavolini, Alessi, Guzzini, Moleskine, Piquadro and the brands falling under the OTB group (Diesel, Maison Margiela), the Calzedonia group (Calzedonia, Intimissimi, Tezenis, Falconieri) and the Vicini group (Vicini, Giuseppe Zanotti Design).

Major transactions completed by Italian groups in the past decade include the acquisition of the confectioners Thornton’s by Ferrero in 2015, the acquisition of the Stag group and its subsidiaries by ALA, a group that works in distribution, logistics and supply of services for the aerospace industry, in 2016, and the acquisition of NXET, the manager of the City to Coast (C2C) train line between London and South Essex, by Trenitalia UK in 2017.

First Trenitalia West Coast Rail Ltd., a 30/70 partnership between Trenitalia UK and FirstGroup, was recently awarded the West Coast Partnership, a contract to manage train links between London and Edinburgh with branches to Birmingham, Manchester, Liverpool and Glasgow. The concession will run from 2019 to 2031 and includes the management of the conventional rail network and, from 2026, the design and management of the first stretch of high-speed rail in the UK, between London and Birmingham.

At the end of November 2019 Saipem was awarded a contract by the French company EDF Renewables to create an offshore wind farm in Scotland. The project, Neart na Gaoithe, 15km off the Scottish east coast over an area of 105km2, will generate approximately 450 megawatts. Saipem was also involved in 2015 in the creation of HyWind Scotland, the world’s first wind farm on floating platforms, 30km offshore from Peterhead in Aberdeenshire.

The financial sector is also pivotal to the bilateral economic relations between the two countries, especially in view of the fact that the City of London is one of the most important financial hubs in the world and is used as a base for European investment by many Asian and North American investors. A number of Italian banks operate on the British market, including Unicredit, Intesa-SanPaolo (which has recently opened a branch specialising in private banking), Banca IMI and Mediobanca. These banks and the acquisition of Borsa Italiana by the London Stock Exchange in 2007 are a crucial element of bilateral economic cooperation. The City is also home to numerous Italian private equity funds and family office funds.

Agreements on tax issues

• Agreement between the Italian Republic and the Government of the Cayman Islands on the Exchange of Information on Tax Matters, signed in London on 3rd December 2012 (entered into force on 13th August 2015)

• Agreement between the Government of Italy and the Government of Jersey on the Exchange of Information relating to Tax Matters, signed in London on 13th March 2012 (entered into force on 26th January 2015)

• Convention between the United Kingdom and Northern Ireland and the Italian Republic for the avoidance of double taxation and the prevention of fiscal evasion with respect to Taxes on Income, signed on 21 October 1988 (entered into force on 30 December 1990)

International economic organisations based in London

· The European Bank for Reconstruction and Development (EBRD)

· The International Coffee Organisation (ICO)

· The International Council on Cereals (IGC)

· The International Sugar Organisation (ISO)


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