Business news 17 July 2023
James Salmon, Operations Director.
Soaring costs drive company collapses. Monetary policy hits CFO confidence. Covid loan concern. Rising rates push more households into debt . Trade deal with CPTPP. And more business news that we thought would interest our members.
Soaring costs drive company collapses
Data from restructuring firm Kroll shows that company administrations increased by 44% in the first half of the year, hitting 618. This comes with businesses facing a sharp rise in costs for labour, materials, energy and credit. Sarah Rayment, co-head of global restructuring at Kroll, said: “This probably is going to be a continuing trend. The challenged sectors continue to be construction, manufacturing, leisure and hospitality.” She added that while “banks want to work with their customers and suppliers want to work with businesses … there are always going to be situations where businesses fail because they have just run out of all of the resources available to them.” Ms Rayment expects to see an increase in liquidations as “there will be a clear-out” of zombie companies that were supported through the pandemic, “and now there is no blue sky available to them.”
Monetary policy hits CFO confidence
Deloitte’s quarterly survey of chief financial officers shows that tighter monetary policy is considered the main threat to British businesses, with concerns over inflation and interest rates pushing ahead of fears about geopolitical issues and energy prices. Deloitte’s optimism/pessimism index was a net -10%, indicating that more CFOs are negative about their firm’s financial prospects than are not. That compares with a net 25% three months ago. Respondents expect interest rates to be at 4.5% in 12 months, up from the 3.75% reported in Q1. Inflation is expected to remain above the Bank of England’s 2% target in 2024, at 3.6%. Deloitte’s chief economist, Ian Stewart, said: “The burst of business optimism seen in the spring has faded under the weight of inflation and rising interest rates,” adding: “Corporates have responded with an increasing focus on cost reduction and cash control.”
Covid loan concern for hospitality firms
A third of pubs, clubs, hotels and wedding venues could be forced out of business due to having to pay interest on pandemic-related loans at a time when operating costs are soaring. Government-backed bounceback loans, as well as Coronavirus Business Interruption Loans, have to be paid back with fixed or variable interest rates, with some firms facing rates of up to 10%. Kate Nicholls, chief executive of UK Hospitality, has written to Business Secretary Kemi Badenoch calling for the terms of emergency loan schemes set up during the pandemic to be amended. Ms Nicholls noted that the sector took out £10bn of Covid-related debt “just to get through the two years of the pandemic.” She added: “Lots of money is being taken out of those businesses just to service that debt, and there is no flexibility on delaying or pausing payments.” Describing the situation as a “real perfect storm,” she warned that the 10% cost of borrowing “will mean some of these businesses don’t make it as going concerns.”
Rising rates push more households into debt
Citizens Advice has warned that a number of households are living on “negative budgets”, where their income is no longer meeting their basic costs. With soaring interest rates hitting budgets, the debt support charity says the number of people who can no longer afford the property they are living in has almost doubled in a year. Meanwhile, a report by the Resolution Foundation think-tank shows that household wealth across Britain has fallen by £2.1trn over the past year. It said that a combination of rising mortgage rates, falling house prices and a collapse in the price of government and corporate bonds has led to total household wealth falling to 650% of national income.
Trade deal will benefit UK if we use it, says Badenoch
Business Secretary Kemi Badenoch says the benefits of a new trade deal with 11 Asia and Pacific nations will depend on how businesses “utilise the agreement.” The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – which includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – loosens restrictions on trade between members and reduces tariffs on goods. While the Government’s own estimates indicate that being in the CPTPP will only add 0.08% to the UK economy in 10 years, Ms Badenoch said that the estimate “doesn’t look at the future growth that’s coming in and it also doesn’t look at how we utilise the agreement.” “If we don’t use it, then it’ll become a self-fulfilling prophecy,” she added. Meanwhile, the British Chambers of Commerce said the deal was “good news for UK businesses to enter or upscale their trade in these markets.” The deal was hailed as a “great achievement” by lobby group TheCityUK, while HSBC UK chief executive Ian Stuart described it as a “significant milestone for UK trade.”
17% of office space fails energy efficiency rules
Nearly a fifth of UK office space does not meet new energy standards. Analysis by property agent Carter Jonas has found that 17% of office space has an energy performance certificate (EPC) rating of F or G and is therefore legally unlettable unless remedial action has been taken. Under energy efficiency rules that came into effect in April, all tenanted commercial property buildings require an EPC rating of at least an E.
National Audit Office to review FCA’s effectiveness
The National Audit Office (NAO) has launched a review of the Financial Conduct Authority (FCA) due to “significant changes” in the way it is expected to regulate the financial services sector. The NAO will assess the City watchdog’s effectiveness and ability to manage new responsibilities, including the consumer duty, oversight of cryptoassets and risks surrounding AI, saying it wants to establish whether the regulator is fit to meet the “challenges of the future” in the financial services industry.
House Prices
Asking prices have fallen for the second month in a row, with Rightmove analysis showing that the price of property coming to market in July fell by 0.2% – or £905 – to an average of £371,907. This follows an £82 decline in June. Rightmove said new sellers were starting to “temper their price expectations in response to rising mortgage costs and increasing buyer affordability constraints.” While buyer demand remains resilient and is 3% higher than in 2019, the number of properties for sale is 12% lower.
House prices remain 2.6% higher than in January, however, proving more resilient than many expected. On an annual basis, house prices rose 0.5% in July, easing from a 1.1% rise in June.
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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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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.
Get compensated for previous late payments
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.