Business news 12 January 2023

James Salmon, Operations Director.

750k at risk of mortgage default. A quarter of households have no savings. Lenders start to drop rates. 100,000 civil servants to strike. Business confidence rises.  And more business news.

FCA: More than 750k at risk of mortgage default
The Financial Conduct Authority (FCA) has warned that more than 750,000 households are at risk of defaulting on their mortgages over the next two years as soaring borrowing costs make payments unaffordable. The FCA said that over 200,000 households had already fallen behind on payments by the end of June 2022 – with bills overdue on around one in 40 home loans. Nikhil Rathi, the FCA’s chief executive, has suggested many of these households are already thousands of pounds behind, with 117,000 borrowers failing to pay a sum equal to more than 1.5% of the balance of their mortgage. The watchdog said a further 570,000 households were “at risk of payment shortfall” within the next two years, meaning their mortgage costs are set to climb to more than 30% of their income. The FCA highlighted that repossession numbers are currently “low”. While the most recent data have been distorted by a backlog in the courts owing to the pandemic, the FCA said there were 835 repossessions in the three months to June, which Mr Rathi has described as “an extremely low number”.

A quarter of households have no savings
A poll by insurer Direct Line shows that 25% of households have no money set aside for emergencies, with 32% saying they have stopped saving due to the rising cost of living. Of those that do have a savings pot, 47% say they have now stopped adding to it. The survey also found that more than a fifth of households would not be able to last a month without getting into financial difficulty if the main earner was unable to work. Of those with savings, two-thirds would face financial difficulties within a year if the main breadwinner was not working. Vincent Guadagnino of Direct Line said: “Millions of households would be in an incredibly vulnerable position if the main household earner was to find themselves out of employment, with the impact felt in an incredibly short amount of time.” He added: “For many households the impact wouldn’t be measured on months but just a few short weeks.”

Lenders start to drop rates
Several lenders are beginning to drop rates following a slowdown in mortgage approvals. TSB, First Direct and Nationwide have all reduced the cost of borrowing this week, with some reducing rates by more than 1%. Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Lenders have been reducing their fixed-rate mortgages due to the falling cost of funds and drop in activity, which means they have more appetite to lend. We expect this trend in rate cutting to continue as lenders compete for business.” According to Office for National Statistics data, 57% of deals coming up for renewal in 2023 are at rates below 2%. At present, an average two-year fixed deal is 5.69% while a five-year fixed is 5.5%.

100,000 civil servants to strike
The Public and Commercial Services (PCS) union has announced that around 100,000 civil servants are to strike on February 1, describing the walkout as “the largest civil service strike for years.” The action, which is an escalation of a long-running dispute over pay and conditions, will see members in 124 government departments – along with several other bodies – walk out. PCS said a further 33,000 union members in five more government departments, including HMRC, are re-balloting next week to join the strike action. The union has called for a 10% pay rise, better pensions, job security and no cuts to redundancy terms. PCS general secretary Mark Serwotka is set to meet with Cabinet Office Minister Jeremy Quin and says there is a “chance” the dispute could be resolved if the Government puts “some money on the table.” Employees from public sector bodies including Department for Work and Pensions, Driver & Vehicle Licensing Agency, and Department of Health and Social Care will take part in the action.

The UK’s 50 leading workplaces
The best places to work have been revealed, with a survey from workplace ranking firm Glassdoor seeing consultants Bain & Company secure top spot. This came after employees praised the company’s culture, work-life balance and learning opportunities. ServiceNow, which was the 2021 winner, came second, while Boston Consulting Group, another consultancy, took third. Overall, 21 technology companies made the list of best workplaces, as well as nine finance firms, seven consultancies and four manufacturing employers. Glassdoor chief executive Christian Sutherland-Wong said: “The past year brought extreme highs and lows for job seekers and employees, but despite an increasingly uncertain job market, Glassdoor data shows there are still companies hyper-focused on creating outstanding employee experiences.”

Business confidence rises
A quarterly survey of the UK’s financial services firms shows that confidence in the sector increased in the three months to December. An index of confidence rose to 10 from -55 in the prior three-month period, with 95 of the firms reporting higher business volumes and employment growth in the period. Looking ahead, a majority of companies believe they will face disruption from regulatory reform, persistently high inflation and the digital transition this year. Rain Newton-Smith, chief economist at the CBI, said the sector will hope Chancellor Jeremy Hunt’s Spring Statement delivers measures to help boost the economy with a “concrete plan for growth.” “A fit and firing financial services sector is vital to the UK’s long-term economic success a that’s why we need business and government working together to safeguard the industry’s global competitiveness,” she added. Isabelle Jenkins, leader of financial services at PwC, which helped compile the survey, said: “Despite the uptick in sentiment, it seems that this quarter’s results reflect the gloomy forecasts we’ve been seeing, with firms mindful of the ongoing impact of the cost-of-living crisis.”

Musk lands record for losses
Tesla founder Elon Musk has broken the world record for the largest loss of personal fortune, with analysis from Guinness World Records showing that he lost around $165bn from November 2021 to December 2022. The decline in his wealth follows a fall in value of shares in Tesla after Mr Musk acquired Twitter in a $44bn takeover – with his move for the social media giant prompting concern that he would shift focus away from the electric car firm. In December, Mr Musk lost his position as richest person in the world to Bernard Arnault, the chief executive of luxury goods company LVMH. Forbes says Mr Musk is now worth about $178bn, while Mr Arnault has an estimated value of $188bn.

Cash withdrawals rise for first time in 13 years
Data from Nationwide shows that cash usage increased for the first time in 13 years in 2022. Over 30.2m cash withdrawals were made from Nationwide ATMs last year, with this marking a 19% increase on 2021. The average amount of cash withdrawn from Nationwide ATMs was £105 last year, down 2% on 2021 but 25% up on 2019.

FTX

FTX advisers have found more than $5 billion in cash or crypto-assets that it may be able to sell to help repay creditors.

Markets

The FTSE 100 was buoyant yesterday, edging closer to all-time highs after reaching mid-session levels of 7772, although it closed at . The all-time high was 7877 which was set in May of 2018.  Shares in London were helped by a strong showing from retail stocks, spearheaded by sports clothing retailer JD Sports after the company reported strong sales over the Christmas period. JD was up by over 7% dragging other retailers such as Frasers and Next with it. Overnight, the DOW rose 0.80%, the S&P 500 rose 1.28% and the NASDAQ rose 1.76% as US investors grow increasingly confident that US inflation figures due out today will showa fall and ease pressure on central bankers to raise US rates.

Direct Line

Direct Line Insurance blamed the severe cold weather for a significant increase in its claims over December, pushing the company to an underwriting loss for the year. Direct Line told investors that it expects related claims of around £90 million across the home and commercial divisions, and would be cancelling its final dividend as a result.

Oil

When it was first suggested, it was considered unworkable and misguided, however the price cap on Russian oil exports is now starting to show signs of success, helped by the mild winter and slowing economic environment. The few buyers of Russian oil are also exerting their dominant position and Russia is forced to sell most of its oil below the $60 cap.

Tesco

Tesco hailed “strong growth” over Christmas as like-for-like sales in the 19 weeks to January 7 rose 6.4% year-on-year (excluding VAT and fuel). That period encompasses Tesco’s third quarter to Nov 26, when like-for-like sales climbed 5.7%, and the six weeks to Jan 7, when sales climbed 7.9%. “I’m really pleased with our performance over this period – particularly the further strong growth at Christmas on top of the exceptional growth of the last few years,” Chief Executive Ken Murphy said.

Centrica

The British Gas owner raised its outlook on a “strong operational performance”  and now expects to report 2022 adjusted earnings per share of above 30 pence. In November, it predicted an adjusted EPS at the top end of a 15.1p to 26.0p sell-side analyst range.  “Infrastructure asset availability and volumes have remained good, and we delivered incrementally strong optimisation performance,” Centrica said.

M&S

Marks & Spencer said it outperformed the market “on volume and value” in the important four-week xmas period. In the third quarter, covering the 13 weeks to December 31, group sales improved 9.9% year-on-year to £3.60 billion. Food sales rose 10% to £2.11 billion. In Clothing & Home, sales rose 8.8% to £1.18 billion. “M&S Food outperformed the market on volume and value in the critical four-week Christmas.

MPs tell HMRC to improve ‘unacceptable’ customer service
MPs have given HMRC three months to improve “unacceptable” levels of customer service, with the Public Accounts Committee (PAC) saying it was “unconvinced” that HMRC’s existing plans to address issues including delays in correspondence would work quickly enough. On the back of a report which warned that HMRC’s customer service will get worse as inflationary pressures squeeze its spending power, the MPs gave the tax office three months to set out a plan to improve customer service “as quickly as possible.” HMRC plans to address delays by investing in digitising the tax system, but the PAC said it was unconvinced this would be enough to improve customer service. The PAC has also told HMRC it must dedicate more resources to closing the tax gap. This comes after data revealed that HMRC has lost £42bn in unpaid tax, and for every £1 that HMRC spends on compliance, it recovers just £18 in additional tax. The MPs also said they were disappointed by HMRC’s plan to only recover a quarter of the £4.5bn lost to fraud and error through its pandemic-related support schemes. Meanwhile, in a piece for the Times, Glenn Collins, UK head of technical and strategic engagement at the Association of Chartered Certified Accountants, sets out changes he believes are needed at the tax office. He warns that HMRC is “creaking badly,” arguing that this “is leading to an increasingly inefficient and ineffective tax service.”

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.