Business news 22 June 2023

James Salmon, Operations Director.

Inflation persists, recession needed to curb rising prices. UK debt now more than 100% of GDP. Soaring mortgage rates will cost 1.4m a fifth of disposable income.  And more business news that we thought would interest our members.

Inflation persists, recession needed to curb rising prices

Fears of a further rise in interest rates were heightened on Wednesday after new data showed the CPI rate of inflation remained stuck at 8.7% in May, the same rate it was in April but worse than the 8.4% expected. Core inflation rose to a 31 year high of 7.1% from 6.8% in the previous month. Services inflation rose to 7.4% in May; goods inflation came in at 9.7% while food inflation dropped to 18.3% from 19%. But the cost of food in supermarkets still rose 0.9% over the month of May.

“Today’s data will likely leave the Bank of England with no choice but to opt for another increase in the base rate tomorrow,” Yael Selfin, chief economist at KPMG UK, said, adding that the BoE may need to guide the economy into a recession “to bring inflation back to target”. The Bank is widely expected to raise interest rates again today, from 4.5% to 4.75%, with increasing speculation it might even opt for a 0.5-point rise. Markets are now pricing in peak interest rates of 6% by the end of this year.

While economists and investors expect the Monetary Policy Committee to push ahead with another quarter-point increase in Bank rate to 4.75%, the 13th rise in what is now likely to be an extension of the quickest hiking cycle in more than three decades. Money markets place a 40% chance on a bigger half-point increase to 5%.

45% of mortgage holders struggling to pay bills

According to debt charity StepChange, said 45% of mortgage payers found it difficult to pay their bills.

StepChange also said that 40% of mortgage holders are showing at least one sign of financial difficulty while 10% are estimated to be in problem debt.

Sterling

Sterling is surprisingly soft this week even though traders are raising bets on a more aggressive than expected BoE rate hike later today, after yesterday’s UK CPI data. It’s clearly weighed down in selloff against the stronger Euro. UK stock declined in response.

Although the pound is the best performing currency of the G10 this year, it is unlikely to benefit further from rising rates as recession fears hit the currency.

House Prices

House Prices increased by 3.5% in the 12 months to April, the Office for National Statistics said on Wednesday, slowing from the 4.1% rise in March. London was the region with the lowest annual growth, the ONS said, with prices in the capital up 2.4%.

Cheaper Breakfast

Bloombergs Breakfast Index has fallen for the first time since its inception over a year ago. The total price of all the items in its index (sausages, bacon, eggs, bread, butter, tomatoes, mushrooms, milk, tea and coffee) fell 43 pence to £35.44 in May.

UK debt now more than 100% of GDP

Figures from the Office for National Statistics (ONS) show the UK’s debt has risen above the annual size of the economy for the first time since March 1961.

The Government borrowed £20bn to plug the gap between tax receipts and public spending in May – more than double the £9.4bn borrowed in the same month a year ago.

The ONS blamed the rise in borrowing on increases in benefit payments, including the state pension, universal credit and child benefit. Two one-off NHS pay awards and a £9.8bn payment from the Treasury to the Bank of England to cover losses on its massive bond-buying programme have also been blamed.

Martin Beck, the chief economic adviser to the EY ITEM Club, said that while there were only two months of figures for the current financial year, borrowing was already running £2.1bn above the most recent estimates from the OBR. Beck said: “We expect this gap to widen as we move through 2023-24. Higher inflation combined with higher short- and long-term interest rates will significantly increase the level of debt interest payments, and borrowing could overshoot the OBR’s forecast by as much as £20bn by the end of the fiscal year.”

Soaring mortgage rates will cost 1.4m a fifth of disposable income

Higher mortgage costs will mean almost 1.4m UK households will need to spend at least 20% of their disposable incomes on repayments. According to the Institute for Fiscal Studies (IFS), in March 2022, households with a mortgage were spending an average of £670 per month on payments, £230 of which was interest. Now, mortgage-holding households face paying an average of nearly £280 more each month, with 30 to 39-year-olds paying nearly £360 more.

This comes as the average mortgage rate for a two-year fixed deal rises to above 6% and the average five-year fixed rate deal has increased to 5.67% – up from 5.62% on Friday. The Treasury has rejected calls for a mortgage relief fund for struggling homeowners, describing such a move as “totally self-defeating”.

The Telegraph’s Matthew Lynn agrees, pointing out that, according to the Financial Conduct Authority, the total outstanding residential mortgage debt in the UK is £1,675bn. At 10%, the interest on this would be £167bn a year. If the Government were to offer to meet even half this, it would cost more than £80bn annually, more than the furlough scheme.

London small firms dominate fast growth list

Small businesses in London have dominated a list of the UK’s fastest growing firms this year. In a ranking of the UK’s 100 fastest growing small firms by business group FEBE, 26% of firms hailed from the capital while 13% came from the broader south east. Yorkshire came in at third position at 11 while Scotland had nine high growth firms. FEBE founder and former Big Four auditor John Maffioli said that despite soaring inflation and energy costs buffeting the UK this year and triggering a sharp rise in insolvencies, small firms in London and the south east had been helped by the exceptional talent and funding flow in the capital.

Musk v Zuckerberg cage fight

Sometimes the news needs no comment. Elon Musk and Mark Zuckerberg  have agreed to fight each other in a cage match.

Mr Musk posted on Twitter that he was “up for a cage fight” with Mr Zuckerberg. Mr Zuckerberg then replied “send me location”. Mr Musk then replied to Mr Zuckerberg’s response with: “Vegas Octagon.”

Elon, 51,tweeted: “I have this great move that I call “The Walrus”, where I just lie on top of my opponent & do nothing.” before following up with “I almost never work out, except for picking up my kids & throwing them in the air.”

US rates

The US Federal Reserve expects to keep raising interest rates but at a slower pace, Fed chair Jerome Powell told a congressional hearing Wednesday. “Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace,” he told the House Committee on Financial Services.

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!

No face-to-face meeting required – 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!

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