Business news 10 May 2024
Bank of England holds rates at 5.25%. UK exits shallow recession. Lending growth set to increase. Mortgages, AI laws, tariffs, markets, insolvencies & more business news that we thought would interest our members.
James Salmon, Operations Director.
Bank of England holds rates at 5.25%
The Bank of England has opted to hold the base rate at 5.25%, with this marking the sixth consecutive meeting where the Monetary Policy Committee has opted against raising or cutting interest rates. Experts believe that the Bank may look to cut rates as early as June, although a reduction in August or September is said to be more likely.
The Bank has also published its latest economic forecast, with inflation expected to fall to the Bank’s 2% target in the coming months and dip to 1.9% in 2026. The Bank also expects the economy to have grown by 0.4% in Q1 and predicts a 0.2% increase for Q2.
Governor Andrew Bailey said: “We’ve had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months. We need to see more evidence that inflation will stay low before we can cut interest rates.” He added: “I’m optimistic that things are moving in the right direction.” Chancellor Jeremy Hunt, who said it was encouraging to see “real optimism” from Mr Bailey, said he would “much rather” policymakers “wait until they are absolutely sure” inflation is falling than “rush into a decision that they had to reverse at a later stage.”
Suren Thiru of the ICAEW believes rates should have been cut, saying the Bank’s decision to hold rates steady marks “a missed opportunity to provide much needed relief for those people struggling with their mortgages and for businesses facing numerous cost pressures.”
Governor Andrew Bailey said Thursday a quarter point reduction in the benchmark lending rate to 5% “is neither ruled out nor a fait accompli,” adding reductions are likely “over the coming quarters.” Analysts now believe the BOE will start cutting rates in June with a cut at each meeting throughout the rest of the year.
GDP flash news: UK exits shallow recession
So just how healthy is our economy? Gross domestic product (GDP) data showed today that the UK exited it’s shallow recession in the first quarter with its fastest growth in 2 years. March had GDP grow 0.4% ahead of a 0.1% estimate, so GDP grew 0.6% in the first quarter and as expected the UK recovered from its 0.3% fall in the last quarter (Q4 2023) and a 0.1% fall in Q3 of 2023.
Lending growth set to increase
UK mortgage lending growth is set to more than double in 2025, according to analysis by the EY Item Club. While the analysis predicts that lending will climb by just 1.5% this year, it anticipates growth of 3.2% in 2025 and 3% in 2026, with this expected to be driven by falling inflation and lower interest rates.
The EY Item Club forecasts that UK bank loans will increase by 1.7% in 2024 – from flat growth in 2023 – before climbing by 3.2% both next year and the year after. The analysis says lending to UK businesses will increase by 0.5% this year, having contracted by 2.1% in 2023. Looking ahead, growth in business lending is predicted to hit 2.8% in 2025 and 3.4% in 2026.
Anna Anthony, UK Financial services managing partner at EY, said: “If inflation continues to fall and interest rates are cut in the coming months as expected, we believe economic recovery and market confidence will gain momentum in 2025.”
800k homeowners face pre-election mortgage hikes
Analysis of Financial Conduct Authority data shows that mortgage payments will jump by over £200 a month for around 800,000 homeowners between now and a likely November election. The research from the Liberal Democrats and House of Commons Library shows that an average of 4,200 households a day are coming off fixed rate deals and being forced into deals with higher payments. By mid-November, 868,000 households will be paying an extra £240 a month for their mortgage, on average. This comes with the average five-year fixed mortgage rate climbing above 5% for the first time since January.
UK moves closer to new AI laws
The House of Lords is set to hear the third reading of the AI bill today, with it expected to progress to the House of Commons. A recent study by Deloitte found that only one third of UK business leaders believe their company has a high level of expertise in AI, with compliance with regulations being a major concern. The lack of concrete rules is causing uncertainty and instability among businesses, who are aligning with the EU’s AI Act in the absence of a UK one. However, critics argue that the prescriptive nature of Europe’s AI legislation may hinder innovation. As the election approaches, pressure is mounting for the government and opposition parties to make a clear commitment to legislating for AI in the UK.
Tariffs
Biden is set to impose fresh tariffs on China as soon as next week, hitting industries such as electric vehicles, batteries and solar cells, where the Chinese Government is accused of engineering prices. Over in Europe, EU firms’ appetite for investing in China has sunk to a record low. While in the UK, the government is facing pressure from UK banks with a foot in China such as HSBC and Standard Chartered, as well as other major companies, to tone down it’s proposed restrictions on doing business with China. They are lobbying for the Government not to include China in the strictest risk category of new national security legislation,
Markets
London markets continued to advance yesterday as the FTSE 100 index hit a fresh record high at 8381.35, having climbed 0.3%.
Wall Street got a boost from strong unemployment data. Weekly jobless claims rose to their highest level in nearly a year, pushing bond yields higher, indicating that the US may cut borrowing rates in 2024. Overnight in the US the S&P 500 rose 0.51% to 5214.08, the Nasdaq rose 0.27% to 16346.27. Ahead of the GDP data, the pound remains weak. The pound is currently worth $1.2534 and €1.1624. Oil is climbing and Brent is at $84.32, Gold is at $2367. The FTSE 100 is up further this morning 0.51% at 8425.
The Bank of England held interest rates as expected and said restrictive monetary policy was taming inflation. Members of the Monetary Policy Committee voted 7-2 to maintain rates at their current levels, with the latter favoring a cut. In its prior meeting, only one member voted to reduce rates. The decision keeps the BOE’s key Bank Rate at 5.25%.
Tourists shun UK for tax-free shopping in Europe
Thousands of tourists who previously shopped tax-free in Britain are now heading to Paris, Milan, and Madrid instead, according to a study by Swiss tax rebate provider Global Blue. Analysis shows that in 2019, 162,000 visitors from outside the EU sought VAT refunds exclusively in the UK. However, a fifth of these visitors now claim rebates in EU countries where the tax break still applies. France and Italy are the biggest beneficiaries, accounting for more than two-thirds of the shift, while Spain has also benefited. The figures are expected to increase pressure on Chancellor Jeremy Hunt to bring back the refund scheme, which was abandoned after Brexit. Major businesses, including Marks & Spencer, Harrods, and Heathrow, are backing a campaign to scrap the tourist tax, while department store Selfridges says the “continued absence of a tax-free shopping scheme in the UK has significantly impacted international sales.” Research suggests that scrapping the tax could see the UK £10bn a year better off. However, a review from the Office for Budget Responsibility estimates that abolishing the scheme has boosted public finances by £462m.
Tax hikes will drive capital flight
Andrew Lilico in the Telegraph reflects on National Institute for Economic and Social Research analysis which suggests that taxes will have to rise due to high levels of debt and a lack of room to cut public spending. He notes that government revenues from taxes and other sources are expected to reach 41% of GDP this year, the highest level since 1969/70, but warns that raising taxes beyond a certain point risks damaging the economy. Mr Lilico argues that rather than tax rises increasing the tax share of GDP, “it is more likely that an attempt to raise them fails because it induces recession, reducing the tax take; secondly, it causes capital flight, reducing the tax base; and thirdly, it leads to the emigration of high-income and high-wealth individuals, again reducing the tax base.”
Balfour Beatty
Balfour Beatty said it has traded in line with expectations so far in 2024, as it makes progress on major deals. The London-based infrastructure construction contractor expects an increase in earnings for 2024. “Since the start of the year, Balfour Beatty has made progress on several major projects which align strategically to the group’s growth markets, and for which material orders are expected to follow,” it said.
Apple
Apple showed unusual contrition and issued an apology for its IPad advertisement that caused a backlash. The advert showed a Piano and an artists dummy along with other creative symbols being crushed in a press. The company has cancelled plans to air the ad also said it won’t air the ad on television as planned and admitted it had missed the mark.
Ministers urged to expand devolution and tax sharing
The Government has been urged to expand devolution and share some tax revenue with devolved administrations. A report by the Institute for Government has urged the next government to expand the map of English devolution to 85% of the population in an effort to tackle regional inequity. The report, A New Deal for England, suggests pilot trials of tax-sharing with leading combined authorities. It suggests devolving a small share of National Insurance revenue as an incentive for local leaders to boost job creation. The report highlights the potential of tax sharing to boost economic growth in London and calls for a review and reform of the Greater London devolution settlement. The report’s recommendations have been endorsed by leading organisations in the capital, including the Centre for London and BusinessLDN.
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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 last one was particularly deadly for suppliers fand we are still seeing elevated insolvencies as businesses struggle.
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.
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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.
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Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.