Business news 6 July 2023
James Salmon, Operations Director.
SMEs set to hold prices. Services sector growth slows in June. Mortgage rates could hit 7%, say brokers. And more business news that we thought would interest our members.
SMEs set to hold prices
Fewer than half of UK SMEs plan to raise their prices in the next three months, according to a quarterly poll of more than 5,000 businesses by the British Chambers of Commerce. The survey found that the main driver of any price increases will be wages, rather than utility bills or the cost of raw materials. The analysis shows that growth in business activity was flat over the last three months, with no significant improvement in sales or cashflow. It was also found that 35% of the firms quizzed had seen a rise in domestic sales, with this up slightly from 34% in the previous quarter. While 24% saw a decline, 41% reported no change.
Services sector growth slows in June
The S&P Global/CIPS UK services PMI showed a slowdown in growth in June, with a reading of 53.7 down from the 55.2 recorded in May on an index where anything above 50 represents growth. June’s figure marks the slowest rate of growth in three months. Services companies, which make up more than 80 % of the economy, saw staffing levels rise at the fastest pace since last September, although higher wage bills increased costs for businesses and offset falling energy and transport bills. Samuel Tombs of Pantheon Macroeconomics said: “The recovery in services output lost a little momentum in June, but it still is holding up well in the face of rising interest rates.”
Meanwhile, the S&P Global/CIPS UK composite PMI – which measures output in the UK’s entire private sector – fell to 52.8 in June from 54 in May. Martin Beck, chief economic adviser to the EY Item Club, said the PMI surveys had been a relatively poor indicator of the economy recently as GDP data “has been heavily influenced by factors not captured by the surveys, such as the impact of strikes on public sector output and idiosyncratic factors like May’s extra bank holiday.” He expects the negative impact of such factors to subside in the coming months.
Mortgage rates could hit 7%, say brokers
Brokers have warned that mortgage rates could hit 7% in the coming months.
While Chris Sykes of brokers Private Finance warned: “There is every possibility we could see average rates hitting 7%. If inflation doesn’t improve, this could be reached very quickly,” David Hollingworth of L&C Mortgages added: “If the market carries on as it has been going, we will reach this level in the next couple of months.” Max Mosley, an economist at the National Institute of Economic and Social Research, has voiced concern over rising rates, saying: “The impact would be huge – hundreds of pounds added to mortgage bills.” He added that a rate of 6% is “already an extreme shock,” so rates hitting 7% would “ further the mortgage crisis.” With swap rates, which determine how lenders price their fixed-rate mortgage deals, increasing and expected to climb further, RSM economist Thomas Pugh expects the housing market to fall by around 15%.
Elsewhere, JPMorgan Chase & Co. said there’s a risk that the Bank of England will have to push interest rates as high as 7% and trigger a “hard landing” in the economy to quell inflation.
More than 11 million UK homes have declined in value since the end of last year, as pricey mortgages wreak havoc on the nation’s real estate market. Some 38% of homes lost at least 1% in value between November and May, according to estimates from property portal Zoopla.
Construction PMI
Construction slipped into negative territory with the latest PMI’s dropping from 51 to 48.9 when they had been predicted to climb to 51.6.
Yield on new government debt at highest since 2007
The amount of interest the Government has to pay investors buying its newly minted debt has hit its highest level since 2007. Britain’s Debt Management Office, which issues bonds, has sold a tranche of gilts to traders with a yield of almost 5.7%. With traders expecting the Bank of England’s base rate to peak at around 6.25%, the Government has to offer a higher rate of return on its debt otherwise it is likely that investors would refuse to buy the debt. Rates on the two-year and 10-year gilt are 5.37% and 4.49% respectively, signalling that investors expect interest rates to rise in the short term. The sale raised £4bn, with this used to finance Government spending that is not generated from tax revenue.
Prezzo restructuring gives HMRC £3.3m but hits landlords
A restructuring of Prezzo has been approved that wipes out all creditors except HMRC. While landlords across the Italian restaurant chain’s lossmaking sites will lose £32m, the tax office will recoup £3.3m of the £11.8m it is owed. Prezzo had sought High Court approval of a restructuring plan that would preserve the chain, with the exception of the 47 restaurants already closed. However, HMRC challenged the plan. The judge rejected HMRC’s arguments, highlighting that payments to the tax office would be higher than if the company had gone into administration. While private equity backer Cain International is supporting Prezzo with a secured loan note of £24.4m, FRP Advisory, which is advising the chain on the restructuring, calculates that if it enters administration, Prezzo would be worth around £10m to £14m.
Increasing numbers of grandparents gifting money to grandchildren
A growing number of adults are turning to the ‘bank of granddad and grandma’ for financial support, new research suggests. Almost a third of grandparents surveyed by Saga said that they’ve lent or gifted money to their grandchildren, with the elderly family members paying out £2,119 on average. Grandchildren between the ages of 18 and 40 were also quizzed about what they have been spending their inherited riches on. The insurance and holiday provider found that 20% of respondents said that they had used the money on holidays and 18% said it had been spent on cars.
City watchdog targets trade data in post-Brexit rules overhaul
The Financial Conduct Authority (FCA) has proposed changes to the way City traders access data as part of its post-Brexit reforms that will remove red tape from the UK’s financial services sector. The City watchdog plans to create a consolidated tape for City traders which will condense multiple streams of data in one place and allow investors to make “better, more timely decisions.” In trading, a tape records all stock trades throughout the day and includes size, price and time of the transaction. The FCA said the consolidated tape will “increase transparency and access to trading data,” while also cutting costs and providing higher quality data. It has proposed that the new tape will initially cover the bonds market, followed by equities.
Threads v Twitter
Meta’s newest app, Threads has gone live in Zuckerberg’s challenge to Musk’s Twitter. Millions have already downloaded the app. Mark Zuckerberg pitched Threads as a “friendly” alternative to Twitter.
AI v Fraud
Mastercard has launched an AI-powered tool that helps banks more effectively spot if their customers are being tricked into sending money to fraudsters. Nine of the UK’s biggest banks including Lloyds and Natwest have signed up to the new service.
US Rates
US Federal Reserve officials signaled they plan to resume rate rises believing more tightening is required to tame inflation in the world’s largest economy. “Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate,” minutes from the June meeting of the Federal Open Market Committee showed.
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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.
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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
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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?
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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.