Business news 19 May 2023

James Salmon, Operations Director.

Mortgage arrears and repossessions increase. 1 in 3 use savings for essentials. Consumer confidence climbs. Brexit sanctions, semiconductors, water, BOE, energy, rates, tax and more business news that we thought would interest our members.

Mortgage arrears and repossessions increase

Data from UK Finance shows that the number of households falling into arrears increased in Q1. Mortgages in arrears of more than 2.5% hit 76,630, marking a 2% increase on Q4 2022. There were 27,700 mortgages in arrears of between 2.5% and 5%, with this up 5% quarter-on-quarter.

Lee Hopley, UK Finance’s director of economic insight and research, said the increase in arrears reflected “the increased cost-of-living weighing on households’ incomes.”

The report also reveals that repossessions jumped by 50% in the first quarter, with 750 homeowner mortgaged properties repossessed. There were also 410 buy-to-let mortgaged properties taken into possession, representing a 28% increase on the previous quarter. Mr Hopley noted that despite the increase, the total number of possessions remains significantly below the levels seen prior to the pandemic.

1 in 3 use savings for essentials
A KPMG poll shows that a third of consumers with savings are using them to help meet their essential costs, while the same proportion have switched to cheaper retailers. Noting the impact of the rising cost of rents and borrowing, Linda Ellett, UK head of consumer markets, retail and leisure at KPMG, said: “Essential costs continue to dictate whether consumers need to take steps to save money elsewhere in their budget.” While a third of people are using savings to cover costs, Ms Ellett notes that “among the remaining two-thirds, appetite exists to make major purchases during the rest of this year.” Food prices have risen by 19.1% this year, official data shows, adding to pressure on consumers already struggling with the cost of living.

Consumer confidence climbs
Consumer confidence has increased for the fourth consecutive month, according to GfK’s survey of consumer sentiment, which rose by three points to -27 in May. Consumer sentiment last year slumped to a record low of -49 as energy prices and inflation soared. The survey of 2,000 people found increased optimism in all areas of personal finances, including their outlook over the next 12 months, which saw a five-point jump to -8. Joe Staton, client strategy director at GfK, said the survey reflected “a stronger underlying financial picture across the UK than many would think.”

Brexit

The prime minister has confirmed that the UK government is in talks with the European Union about Brexit-related rules. The auto industry in the UK, where vehicle output shrank almost 10% last year, is howling. The country has struggled to attract significant auto-industry investment post-Brexit, with several manufacturers upping sticks.

AI

Prime Minister Rishi Sunak said G7 countries will coordinate on artificial intelligence regulations, as politicians become more concerned about the potential dangers of the technology. AI must be developed “safely and securely and with guardrails in place,” Sunak saidin Japan. “The technology is evolving quickly and we want to make sure that our regulation can evolve as it does as well.”

Russian Sanctions

The UK unveiled new sanctions against Russia’s minerals sector, targeting imports of aluminium, diamonds, copper, and nickel in an effort to choke Moscow’s ability to fund the war in Ukraine.  The G-7 are also set to increase pressure on Russia with additional sanctions as well as restrictions on goods it uses on the battlefield, according to US officials.

Semiconductor strategy

The UK Government unveiled a new £1 billion semiconductor strategy to invest in infrastructure, research and security as the UK tries to diversify its chip supply chain. The plan would “safeguard supply chains from disruption and protect tech against national security risks”, the UK government’s Department for Business, Energy & Industrial Strategy said in a statement.

Water

UK water companies apologised and announced a plan to spend £10bn on sewage spills by 2030 but have warned this will result in higher water bills.

US debt ceiling

Both sides are sounding increasingly confident that a deal is getting close, maybe even by the weekend,  to avoid sending the US government into default.

Bank defends rate policy and QE
The Bank of England has denied that its policy on interest rates and bond buying programme has helped drive a surge in inflation and house prices. Officials have refuted suggestions from MPs on the Treasury Select Committee that near-zero borrowing costs and quantitative easing helped fuel an asset price bubble following the financial crisis. Governor Andrew Bailey said: “The period in which the house price to income ratio rose most was the period of ten years before 2007,” adding: “That was the period when it rose most substantially. It hasn’t done the same thing since then.” Ben Broadbent, the Bank’s deputy governor, told the committee that the decision to buy bonds in 2020 had not caused inflation to hit 40-year highs, saying: “The idea that this is the cause of double-digit [inflation] is not well-supported.” Since December 2021, the Bank has raised its benchmark interest rate from 0.1% to 4.5%. It has also started selling off the £850bn of UK bonds it bought to stimulate growth and lift inflation.

Gilt prices were lower after the Bank of England Governor and Deputy Governor said the UK central bank wanted to reduce its balance sheet from its current level of £850bn to give it ‘headroom to respond to future events’. Deputy Governor Sir Dave Ramsden said the pace of quantitative tightening ‘may increase’. Long gilt prices were down over £2 with long yields over 4.3%.

Bank of England Governor said today that quantitative easing was not responsible for rising global inflation or mortgage arrears pointing out the UK had 10 years of quantitative easing before the pandemic without an inflation problem.

Energy firms to refund overcharged customers
Ofgem has ordered energy firms Ovo and Good Energy to refund customers who have been overcharged. The energy regulator has told the firms to pay a total of £4m, with £2.7m of this to be split between 18,000 households. An extra £1.25m will go to vulnerable customers under Ofgem’s voluntary redress fund. Customers who have been affected will be automatically refunded.

Scottish Small businesses benefit from rates revaluation
Scottish shops are seeing a fall in business rate bills of nearly 10% following revaluations from the start of last month. The Scottish Government has updated rental values, on which bills are based, for the first time in six years. While most pubs and restaurants will see an average 5% drop in bills, smaller premises will see greater cuts and the largest businesses will see their bills rise. Shops will see a cut of around 10% but nearly two-thirds of hotels have seen valuations rise to some extent.

Starmer vows to break high-tax, low-growth ‘doom loop’
Sir Keir Starmer says a Labour government will tackle a “doom loop” of high taxes and low growth. The Labour leader said he would seek to ensure “investment thrives” in order to boost growth in the economy if he is elected Prime Minister. He said it is “vital we create the circumstances for investment to thrive. We will not get growth unless we do that.” Reflecting on why Britain has such a high tax regime, Sir Keir said: “In my view it’s because we’ve got low growth. That’s why I call it a doom loop – leading to the highest tax since the Second World War. We’ve got to break out of that cycle.”

Sustainable investing appeal declines
The popularity of sustainable investing has fallen, according to a poll by the UK arm of broker Charles Schwab, with investors prioritising returns over ESG issues. The poll shows that the proportion of retail investors who were unconcerned if their investments underperformed as long as they were sustainable fell to 47% in February, from 55% in late 2021. Those who considered ESG factors when putting money into a new investment fell by six percentage points to 38%, while willingness to pay extra fees for ESG investments slid from 58% to 50%. Richard Flynn, managing director at Charles Schwab UK, said: “With the need to maximise returns seemingly growing in importance amid the cost of living crisis, fewer investors seem to be factoring in ESG-related considerations into their investment decisions.” The poll also shows that 61% of investors believe the UK is a good area to invest, marking a nine-point decline. The US, however, was up two points to 66%.

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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.

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