Business news 5 September 2023
James Salmon, Operations Director.
High interest rates will drive thousands of firms to the wall. Chance of recession is 50:50. Economists grow gloomier on 2024 as central banks delay rate cuts. Rising consumer confidence boosted retail sales in August. And more business news that we thought would interest our members.
High interest rates will drive thousands of firms to the wall
Research by the Centre for Economics and Business Research (CEBR) indicates that around 7,000 businesses are likely to fail every quarter in 2024 because of the debt taken on during the pandemic, higher borrowing costs and the cost of living crisis. The retail and hospitality sectors are particularly vulnerable.
“The worst is yet to come in terms of borrowing costs, quite apart from the impact of fixed-term loans made when interest rates were lower being rolled over at the new higher rates,” the thinktank said.
Haldane: Chance of recession is 50:50
The Bank of England’s former chief economist has said the Bank’s money printing programme went on for too long, fuelling inflation. Andy Haldane, who stepped down in April 2021, told Sky News: “With the benefit of hindsight…we probably did a little bit too much for a little too long.” He went on to say that although quantitative easing was needed during the pandemic, perhaps it went on longer than it needed to and the Bank stepped on the brake too late to nip inflation in the bud. Haldane also warned of a 50:50 chance of a recession saying it would take only the tiniest nudge to send the economy into negative territory.
Economists grow gloomier on 2024 as central banks delay rate cuts
Estimates for global growth next year have slipped from 2.4% to 2.1% based on the belief that persistently high demand will keep inflation higher for longer, according to Consensus Economics.
Rising consumer confidence boosted retail sales in August
Rising consumer confidence led to a 4.1% increase in UK retail sales in August, surpassing the three-month average of 3.6% in the best month since February. Health, beauty, and food and drink were the top-performing categories. Online retailers, however, experienced a 3% decline in sales compared to the previous year. The rise in sales reflects improved consumer confidence, with retailers hoping for continued growth as shoppers prepare for Christmas. Helen Dickinson of the British Retail Consortium (BRC) welcomed the easing inflation, but cautioned that high interest rates and winter energy bills may lead to cautious spending. Paul Martin of KPMG predicts that retailers will focus on catering to early Christmas shoppers, as the sector faces challenges from the pandemic and the cost of living crisis.
UK wages: which sectors are driving up pay?
The FT looks at which industries are driving up pay in Britain as wages rise at their fastest pace on record. Financial services leads the way, followed by manufacturing and retail.
Retailers demand reform of “crippling” business rates system
Retailers are demanding urgent reform of the business rates system in the UK, arguing that it is unfair and out of touch with modern shopping and has led to numerous retail casualties and store closures. The British Retail Consortium warns that further company collapses and “gap-toothed high streets” are likely if nothing is done. Critics argue that the biggest problem with the system is the rising multiplier, which has reached an unsustainable level.
London postcodes at highest risk of mortgage default
As interest rates rise, mortgages in London postcodes are at the highest risk of default, according to a new analysis by Mazars. The analysis found that 19 out of the top 20 postcodes with the most “risky” mortgages, defined as loans at least 4.5 times the borrower’s earnings, were in London. South West London dominated the list, with Wandsworth, Battersea, Wimbledon, Fulham, and Tooting taking the top spots. The Bank of England allows a maximum of 15% of a lender’s mortgage book to be “risky” loans. “Hopefully the concentration of such a large amount of their lending to their most highly geared customers in an area about 20 miles wide will only get challenged by the bank’s own stress testing,” said Mazars partner Paul Rouse.
NatWest and HSBC cut mortgage rates again
HSBC, NatWest and Accord Mortgages have announced cuts to their mortgage rates as lenders ramp up competition for custom. As of 4 September, five-year fixed rate deals were at an average of 6.19%, according to Moneyfacts. The average two-year fixed rate was 6.7%. That’s down from a peak of 6.86% for two-year fixes at the end of July and 6.37% for five-year fixes. Nicholas Mendes of mortgage broker John Charcol expects rates to continue to fall, but thinks the chances of the 5% barrier being broken for a five-year fix by the end of the year are slim.
Dover
The Port of Dover wants to build out into the sea on reclaimed land to expand the port and avoid future delays ahead of the EU’s planned biometric border controls system being implemented. The Port’s CEO, Doug Bannister, said reclaiming some land would create more space to process passengers. The new Entry Exit Scheme is expected to start in autumn 2024.
China
China shocked markets with Services PMIs falling to their lowest level of the year, pushing analysts to predict that China may not eclipse the US as the largest economy anytime soon.
Super-rich pour £1.3bn into London offices
Ultra-high net worth individuals and cash-rich family estates have bought £1.3bn worth of offices in the capital over the past year, according to Knight Frank. Nick Braybrook, head of London capital markets at the property agent, said that many buyers were using London office blocks as a way to preserve their wealth – but also to how off to their other rich friends. The super-rich have also capitalised on a sharp fall in the values of London offices – prices of which have dropped by about a fifth so far in 2023.
Wilko rescue deal at risk from supplier demands
A rescue deal to save the majority of Wilko’s stores is at risk as key suppliers, including Unilever and Procter & Gamble, demand upfront repayment of debts. Talks with HMV owner Doug Putman over the weekend have encountered problems, with some suppliers wanting their debts repaid immediately to continue supplying Wilko’s stores. The negotiations also revealed concerns that certain suppliers, who had cancelled shipments during the chain’s administration, would be unable to ship products for another six weeks. Despite these challenges, a deal could still be reached this week. Administrators at PwC are also in talks with potential suitors, such as B&M Bargains, Poundland, Home Bargains, and the Range, about taking on some of Wilko’s stores. Doug Putman’s proposal, if successful, would save the majority of jobs and stores at Wilko. However, job cuts have already begun at the company’s headquarters and warehouses.
Wegovy
Novo Nordisk launched its Wegovy weight loss injection in the UK yesterday, advancing the drug’s rollout in Europe despite ongoing supply constraints. The Danish pharmaceutical giant said that the weekly injection would be available initially “through a controlled and limited launch,” with only certain patients eligible to receive the drug on the country’s National Health Service.
Meanwhile the Danish pharmaceutical become Europe’s most valuable company with a market capitalisation of $428 billion, overtaking LVMH.
Airlines
Ryanair and Wizz Air both said passenger traffic increased in August compared to a year before, with Wizz Air also seeing improved aircraft usage. Ryanair said that it carried 19 million passengers in August, up 11% from 17 million a year prior. The load factor was unchanged at 96%. On a rolling 12-month basis to August, Ryanair said it carried 177.4 million passengers, up 20% from 147.9 million a year before. The load factor improved to 94% from 89%. Wizz Air said it carried 6.1 million passengers in August, representing a 24% compared to 5.0 million passengers in August 2022, at a load factor of 94%, up from 91% a year ago. On a rolling 12-month basis, Wizz Air carried 56.6 million passengers, reflecting a 43% rise from 39.5 million a year before, at a load factor of 90%, up from 84%.
Energy supplier seeks to overturn new financial resilience rule
The British energy supplier Utilita is looking to overturn planned new rules from Ofgem requiring a capital buffer be kept to shield against volatile market conditions. The company argues that the measures, set to be introduced in March 2025, threaten to “put fundamentally resilient suppliers in an unsustainable position for minimal regulatory benefit”. In a filing with the Competition and Markets Authority, Utilita added that the rules could make “survival in the market difficult” for smaller firms, given their “limited options” for raising extra finance. It is seeking permission from the competition regulator to appeal against the rule.
Some 62% of households are worried about finances
A new study from Nationwide Building Society shows three in five households are now worried about their finances. Despite this, spending on non-essentials was up 6% in July with airline travel the top category with a 44% rise in spend. This was followed by digital goods, up 26%, and leisure and recreation which was up 11%. Spending on essentials was up 4% compared to July 2022, with rent up 27% followed by mortgage payments at 16%. Mark Nalder, of Nationwide Building Society, said the ongoing rise of essential and non-essential costs are starting to dampen the national mood. “Whether this translates into a reining in of spending in the coming months is something we will continue to monitor.”
One in five cut back or scrap pension saving
A survey by Hargreaves Lansdown reveals that 14% of people have stopped saving into their pension and 8% have cut contributions due to tighter household budgets. Men, younger people and higher earners are the most likely to have cut back. Around 35% of additional rate income tax payers have stopped or cut back contributions; 38% of higher rate taxpayers have done so, and 18% of basic rate tax payers. Helen Morrissey, head of retirement analysis at Hargreaves says one reason why higher earners are cutting back is because they are more likely to be exposed to higher mortgage rates.
The UK has no excuse to further delay audit reform
Anne Kiem, the CEO at the Chartered Institute of Internal Auditors, says that over four years on from a review into the Financial Reporting Council there is no excuse for further delays to audit reform.
Campaigners urge G20 to raise taxes on global rich
Leading developed and emerging economies must use a summit this weekend to forge a pact to raise wealth taxes on the global rich, campaigners have said. In a letter to the G20, a group of almost 300 millionaires, economists, and politicians called for urgent action to prevent extreme wealth from “corroding our collective future”. The letter, signed by individuals including Abigail Disney, Brian Eno, and Richard Curtis, urged the G20 to demonstrate global cooperation by collectively agreeing to tax wealth. The campaigners argue that taxing wealth more heavily would help reduce dangerous levels of inequality. They highlight that the combined wealth of those with over $50m in assets has more than doubled to $11.8tn, with only four cents in every dollar of tax revenue coming from wealth taxes. The letter said: “Decades of falling taxes on the richest, based on the false promise that the wealth at the top would somehow benefit us all, has contributed to the rise in extreme inequality. Our political choices allow ultra-wealthy individuals to continue to use tax shelters and enjoy preferential treatment to the extent that, in most countries in the world, they pay lower tax rates than ordinary people.”
Latest Insolvencies
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!
Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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Check our compensation calculator to see how much your business could be owed!
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.