Business news 19 June 2023
James Salmon, Operations Director.
Company insolvencies climb 40%. Bank set to hike borrowing costs again. Mortgage rates edge toward 6%. Brexit is to blame for inflation, Carney claims. And more business news that we thought would interest our members.
Company insolvencies climb 40%
Company insolvencies in England and Wales jumped 40% year-on-year in May.
About 2,552 companies were declared insolvent last month, largely through creditors’ voluntary liquidations where directors agree to wind up the business without a formal court order.
The Insolvency Service report also shows a 34% increase in compulsory liquidations, with this driven by a rise in requests from tax authorities looking to recover unpaid tax bills.
Nicky Fisher, the president of insolvency and restructuring industry group R3, said: “Three years of economic turmoil is taking its toll on businesses.” She warned that “the fallout from battling the effects of the pandemic, coupled with rising costs, increased creditor pressure, and high inflation, is causing more businesses to turn to an insolvency process to help resolve financial issues.”
David Kelly, head of insolvency at PwC, said “extremely challenging” trading conditions mean the number of insolvencies are likely to increase through the second half of the year.
Lindsey Cooper, a restructuring advisory partner at RSM, commented: “With the continued increase in interest rates it is becoming more and more difficult for some businesses to refinance and we expect more failures among those businesses which are already in a vulnerable cash position.”
Bank set to hike borrowing costs again
The Bank of England is expected to deliver its thirteenth consecutive hike in borrowing costs this week. Some analysts believe the Bank could opt for a half-percentage point rise as it looks to tame inflation, a move that would take the base rate to 5%. It would be the first time Bank officials have approved a half-percentage point rise since February and Sandra Horsfield, an economist at investment bank Investec, said such a move would be “aggressive.” While Consumer Price Index inflation has peaked, core inflation is still rising at 6.8% a year. The Bank is hoping its rate-setting decisions will bring inflation closer to its 2% target.
Mortgage rates edge toward 6%
A number of banks increased rates for home loans on Friday, with analysis from Moneyfacts showing that the average rate on a two-year deal has risen from 5.92% to 5.98%. For five-year fixes the average rate rose from 5.56% to 5.62%.
Nationwide and Progressive said interest rates on some fixed rate deals would go up by as much as 0.55%, while Skipton added up to 0.4%. NatWest and Clydesdale Bank have made changes in recent days, while Coventry Building Society said it intends to re-price its deals. Landlords have not been spared, with several lenders confirming higher rates on buy to let home mortgages.
The average two-year fixed rate rose from 6.13% to 6.21%, while the average five-year deal jumped from 6.13% to 6.17%.
Data from trade body UK Finance shows that, on average, repayments on new loans accounted for 20% of borrowers’ gross incomes between January and April. This is up from 17% in 2020 and marks the highest level since it hit 23% during the financial crisis.
Mortgages costs to rise by £3k a year
Annual mortgage repayments for people looking to remortgage their homes are set to rise by £2,900 next year, according to the Resolution Foundation. The think-tank says total annual mortgage repayments could rise by £15.8bn by 2026. While analysis from Moneyfacts shows that the average two-year fixed-rate homeowner mortgage is currently at 5.98%, the Resolution Foundation does not expect the average two-year fixed-rate mortgage to fall below 4.5% until the end of 2027. It predicts that the average two-year fixed rate deal will hit 6.25% later this year.
Simon Pittaway, senior economist at the Resolution Foundation, said the “mortgage crunch” is on track to increase total mortgage bills by £15.8bn, with those remortgaging next year set to see their costs rise by £2,900 on average.
Brexit is to blame for inflation, Carney claims
Mark Carney, a former governor of the Bank of England, says Brexit has contributed to high inflation in the UK. He says he warned the public that leaving the EU would damage the economy, having predicted that leaving the bloc would lead to higher prices, a weaker pound and slower growth.
He told the Telegraph: “There’s no joy in saying: well, ‘we told you so’ because people are having to live with that reality.” Sir Jacob Rees Mogg, the former Business Secretary, described Mr Carney’s criticisms of Brexit as “obviously nonsense”, instead suggesting that failings by the Bank of England have exacerbated the cost-of-living crisis. Dame Andrea Leadsom, another former Business Secretary, said: “I do not agree that inflation is caused by Brexit. Inflation is a massive problem around the world.” Pointing to spikes in energy prices caused by Russia’s invasion of Ukraine and supply chain disruption stemming from the pandemic, she added: “To say this is all the fault of Brexit is just nonsense.”
Negativity hitting trade opportunities
The Business Secretary has warned British businesses are missing out on overseas trade due to “too many negative tropes” about how difficult it is. Speaking at the launch of the UK’s first E-Commerce Trade Commission, Kemi Badenoch said: “We need a change in perception of exporting and how we talk about it.” She added: “I think we’ve created a uniquely British cultural aspect around business … of talking ourselves down. Of ‘oh this isn’t really that good’ and ‘of course it’s not going to work’.” The E-Commerce Trade Commission aims to encourage 70,000 more British businesses to trade and export digitally within two years, helping boost the economy by £9.3bn. Only around 10% of UK firms currently export overseas.
Workers return in ‘great un-retirement’
Age UK has warned that rising living costs are forcing people back to work, saying a “great un-retirement” appears to be taking place as older people see their retirement plans “ruined by the impact of inflation.” The charity has pointed to Office for National Statistics figures showing that 1.075m people under the age of 65 were retired between February and April 2023, down from 1.180m during the same period a year earlier. A recent survey for Age UK found that among 60 to 65-year-olds, 9% said they or someone else in their household had recently had to change their work habits. Caroline Abrahams, charity director at Age UK, said: “The cost-of-living crisis really is driving a coach and horses through many older people’s retirement plans, especially those without much money behind them.” Phil Brown, director of policy at People’s Partnership – provider of the People’s Pension, said: “Our research shows that nearly half of non-retired people think they will still be working beyond the state pension age, with 7% fearing that they will never be able to retire.” “It’s clear that the cost-of-living crisis, and the uncertainty this is causing means that many people are rightly concerned about their retirement prospects,” he added.
Small firms hit by rate rises
The Sunday Times’ Jill Treanor looks at the impact increasing interest rates are having on small firms. Craig Beaumont, head of external affairs at the Federation of Small Businesses, notes that while higher interest rates “are supposed to be painful and take money out of an overheating economy,” they are coming at a time when firms are already struggling. The Bank of England is expected to announce its 13th consecutive rate rise this week. While the consensus among economists is for a quarter-point rise to 4.75%, some experts believe the rate could be increased to 5%. Julie Palmer at Begbies Traynor said the rate rises would increase the pressure on businesses. “People are really beginning to feel the squeeze now. That’s going to have an effect, particularly on businesses in consumer-facing sectors where they feel the impact of people tightening their belts,” she warned.
Report calls for scrapping of EU red tape
A new report by the Independent Business Network (IBN) has called for the scrapping of dozens of EU rules that it says are penalising small firms. The report warns that retained EU law has created an “uneven playing field” that is hampering the growth of SMEs. Proposals put forward by the IBN include overhauling a series of health and safety measures that it says are “unnecessary and very costly” for businesses. The report also calls for the Government to take advantage of the freedoms offered by Brexit to overhaul VAT. A Government spokesman said ministers have already revoked or reformed more than 1,000 EU laws since Brexit, with another 500 rules due to be scrapped via financial legislation. They also noted that an additional 600 are due to be included in the Retained EU Law Bill.
Confidence in BoE’s inflation action dips
Public confidence in the Bank of England’s ability to tackle inflation has fallen, a poll from the Bank shows. As part of its quarterly poll, the Bank asked whether respondents thought it is “doing its job to set interest rates to control inflation.” The proportion satisfied minus the proportion dissatisfied was -13%, down from -4% in February. The survey saw 57% of those polled say they expect rates to rise further in the next year, down from 58% in February’s poll. While 16% said they thought increasing interest rates would be good for the economy, 37% feel they should go down. More than a third thought the Bank’s inflation target of 2% was “about right.” On average, respondents expect inflation to be at 3.5% in 2024 and 2.6% in 2025. Reflecting on the responses, Myron Jobson, senior personal finance analyst at Interactive Investor, said: “There appears to be a great sense of dissatisfaction with the UK’s central bank over its grip on inflation among the members of the public who participated in the poll.”
Energy bills support took too long, say MPs
MPs say the Government’s energy bills support scheme took too long to get to those it was designed to help. The Public Accounts Committee (PAC) said about 1.7m people, including vulnerable individuals, were left waiting months for help. The committee said the Government was hindered by a “lack of bandwidth” as it looked to ensure peopl received support at the same time. The PAC has told ministers to clarify how they will protect consumers from future price rises “as a matter of urgency.” It also said it has “serious concerns” about the Department for Energy Security and Net Zero’s “lack of urgency in addressing the energy market failures that are leading to high energy bills for consumers.”
Tesco sees ‘encouraging early signs’ over grocery inflation
Tesco chief executive Ken Murphy says there are “encouraging early signs” that grocery inflation is starting to ease. Saying he believed pricing is “past the peak of inflation,” he added: “Hopefully we will see prices moderate through the rest of the year.” John Moore, senior investment manager at RBC Brewin Dolphin, said: “Tesco’s management saying inflation looks like it’s beginning to ease is a good sign that there may be better times ahead for consumers.” However, he warned that “as we have seen over the past year or so, things can change quickly and individual events can have a significant impact on supply chains.”
IMF head welcomes ECB rate hikes
Kristalina Georgieva, managing director of the International Monetary Fund, has welcomed the European Central Bank’s decision to raise interest rates for the eighth time in a row as it looks to lower inflation from 6.1% to its goal of 2%. Ms Georgieva said: “Monetary policy should continue to tighten and then remain in restrictive territory for some time until inflation expectations are firmly anchored and inflation trends toward target.” While the eurozone economy contracting slightly in Q4 2022 and Q1 2023, representing a technical recession, Ms Georgieva said growth should pick up later in the year and “finish the year in positive territory.”
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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.