Business news 12 October 2023
James Salmon, Operations Director.
Why corporate failures could soar next year. BoE warns of ‘high debt burdens’. IMF warning on UK interest rates. And more business news that we thought would interest our members.
Breaking news – GDP after the blog was written – more tomorrow
The UK Economy showed modest growth in August after a sharp fall in July, figures just released showed. Data from the Office for National Statistics showed monthly real gross domestic product (GDP) rose 0.2% in August, following a fall of 0.6% in July, revised down from a 0.5% fall. Looking at the broader picture, GDP increased by 0.3% in the three months to August, with growth in all sectors.
Why corporate failures could soar next year
Debt-laden companies across Europe, Middle East and Africa are facing a $500bn refinancing scramble in the first half of 2024. This challenge could lead to the demise of many “zombie” businesses, despite the expected peak in interest rates offering some relief. The value of company loans and bonds maturing during this six-month period is higher than any other equivalent period until the end of 2025, according to analysis by restructuring consultancy Alvarez & Marsal.
Weaker, smaller businesses are seeking new private loans and public debt deals just as government borrowing costs are rising globally. Failure to secure affordable cash could result in insolvencies and job losses. “Interest rate rises are becoming more and more of an issue for companies, particularly those zombie businesses that have been holding on with a sustained period of low interest rates but just barely able to service their debt,” said Julie Palmer, partner at UK restructuring firm Begbies Traynor.
Signs of distress are already evident, with corporate insolvencies in England and Wales up 19% in August compared to the previous year. The Bank of England has warned lenders not to underestimate the risk of corporate loan defaults. The refinancing task cannot be delayed indefinitely, and the impending stricter capital rules from 2025 are expected to limit support for companies in need of fresh funding.
BoE warns of ‘high debt burdens’
The Bank of England has forecast a continued rise in households with high debt servicing ratios and an increase in the use of consumer credit. It says that while households and businesses are already facing cost-of-living pressures and higher borrowing costs, the full impact of higher interest rates has yet to through to them.
The Bank’s Financial Stability Report says that while the Bank expects businesses to be resilient to higher interest rates and weak growth, “smaller businesses and those with relatively bigger debts are likely to struggle more.” The report has also raised concerns about the increasing number of homeowners opting for mortgages with terms of 35 years or longer, with the rise driven by borrowers trying to mitigate the impact of higher interest rates. The Bank warned that while longer mortgage terms may provide short-term relief, they could lead to higher debt burdens in the long run.
The Bank has also highlighted the potential risks in the £250bn money market funds industry and has called for an overhaul of regulations to ensure their ability to sell assets quickly in times of crisis. Despite highlighting a number of challenges, the Bank said the UK banking system remains resilient. It also announced that its annual stress test of Britain’s biggest lenders will gauge their ability to withstand a broader range of hypothetical economic crises.
IMF: UK faces five years of high interest rates
The International Monetary Fund (IMF) says the UK faces another five years of high interest rates. The IMF predicts that the UK economy will grow by 0.6% in 2024. It also expects the Bank of England base rate, which is currently at 5.25%, to peak at 6% and stay around 5% until 2028.
While the IMF expects the UK to have the highest inflation and slowest growth of any G7 economy next year, the Treasury says recent revisions to UK growth had not been factored in to the report.
On a global level, the IMF predicts that overall growth will fall from 3.5% in 2022 to 3% in 2023 and 2.9% in 2024. Growth in the US is forecast to be 1.4% across 2024, while the eurozone is expected to grow 1.2%.
Reflecting on the report, Chancellor Jeremy Hunt said: “The IMF has upgraded growth for this year and downgraded it for next – but longer term they say our growth will be higher than France, Germany or Italy,” adding: “To get there we need to deal with inflation and do more to unlock growth.”
Vacancies fall for first time in three years
Job openings have fallen for the first time in almost three years and wage growth is slowing, according to analysis by the Recruitment and Employment Confederation (REC) and KPMG. The vacancy index slipped to a reading of 49.2 in September, the first time in more than two years that it had fallen below the 50-point threshold that separates growth from contraction. The decline was driven by a dip in public sector hiring. The report also shows that starting salary wage growth slumped to a two-and-a-half-year low, while temporary staff wage growth stalled to its slowest pace in 31 months.
Claire Warnes, a partner at KPMG UK, said: “Employers are clearly nervous due to the long-term economic uncertainty and budget constraints that are affecting businesses everywhere. This is leading to a continued reliance on temporary staff.” REC chief executive Neil Carberry said: “This feels like a market that is finding the bottom of a year-long slowdown. The relative buoyancy of the private sector is likely to be driving this more positive outlook.”
Four in court over Patisserie Valerie collapse
Four people have appeared in court over fraud charges related to the collapse of bakery chain Patisserie Valerie. Christopher Marsh, a former director and chief financial officer of Patisserie Holdings, and his wife, accountant Louise Marsh, have been charged by the Serious Fraud Office (SFO), with financial controller Pritesh Mistry, and financial consultant Nileshkumar Lad also charged. All four are accused of defrauding the company’s shareholders and creditors between October 2015 and October 2018. The SFO launched an investigation after Patisserie Valerie fell into administration with a £94m hole in its accounts.
Grocery inflation falls again
Analysis shows that grocery price inflation has fallen, with prices up 11% year-on-year in the four weeks to October 1 – down from the previous month’s 12.2% increase. This marks the seventh consecutive decline in the rate of price rises since a peak of 17.5% recorded in March. The latest slowdown was driven by an increase in the proportion of groceries bought on offer, which rose to 26.5% over the last 12 weeks. The report also shows that the warm weather seen in recent weeks has delayed early sales of Christmas food, while sales of items often consumed at barbecues have risen.
Side hustles and gig economy workers face tax crackdown
HMRC is preparing to launch an extensive tax crackdown on side hustles and the wider gig economy, a move which could severely impact workers. The new rules, effective from January 1, will require platforms like Uber, Etsy, and Airbnb to record users’ income and report it to HMRC. Seb Maley, CEO of tax insurance provider Qdos, said: “The crux of it is that HMRC doesn’t trust the growing number of people with side hustles in the UK to accurately report how much money they’re making this way,” adding: “So the tax office will go directly to these platforms, who will become responsible for recording this information and handing it over to HMRC.” Freelancers and gig workers have been urged to ensure tax compliance as any discrepancies may lead to investigations. With 7.25m gig workers in the UK, the impact of these measures is expected to be significant.
Lloyd’s of London: Global economy could lose £4trn to extreme weather
Lloyd’s of London estimates that a “plausible increase” in extreme weather events linked to climate change could hit the global economy by up to £4trn. The research, conducted in collaboration with the Cambridge Centre for Risk Studies, modelled global economic losses of extreme weather events by estimating the impact of food and water shocks on global GDP over a five-year period. It found that global economic loss ranges from £2.4trn in the lowest severity scenario to £14trn in the most extreme. Researchers stressed that the “systemic risk scenario” was hypothetical but noted that the analysis would improve understanding of exposure to critical threats for businesses, insurers and policymakers.
Starmer: Labour wants to cut taxes for working people
Sir Keir Starmer has said that a Labour government wants to cut taxes for working people. The party leader said he would like to see the “overall burden” of taxation reduced, while insisting that Labour would “always” operate within its own fiscal rules. Sir Keir, who this week told the party conference that Labour wants to see a “competitive tax regime”, told GB News that high tax and low growth are “the wrong recipe for the country.”
Easyjet
Easyjet is targeting the £1 billion profit barrier after reporting a record fourth quarter as passengers continued to take to the skies. The budget airline unveiled new medium-term targets alongside a trading update for the quarter ending September 30. It set an ambition to deliver pre-tax profit of more than £1 billion with profit per seat between £7-10.
Vodafone
The Competition & Markets Authority on Wednesday said it is considering whether the planned merger the UK businesses of Vodafone Group PLC and CK Hutchison Group Telecom Holdings Ltd would weaken competition. The companies in June unveiled plans to combine their UK businesses, with Vodafone owning 51% and CK Hutchison 49% of the combined operation.
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!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!