Business news 29 September 2022
James Salmon, Operations Director.
British Business Bank warns on small firm defaults, BOE intervenes in the bond market, more commentary on the mini budget. CBI chief urges Government to show it can boost growth. Automotive sector hit by costs. retail inflation. Mortgage market hit. And more business news.
British Business Bank warns on small firm defaults
The British Business Bank (BBB), which helps small businesses access finance, has warned that smaller firms face a challenging few years on the back of the economic downturn.
It said lending to start-ups and the smallest businesses could be particularly vulnerable to the impact of economic uncertainty as they often do not have collateral.
This, it added, could lead to an increase in credit losses if more businesses default on their loans. The state-owned BBB said: “There is a danger that credit and investment losses, including a large write-down of individual investments, could have a material impact on the bank’s ability to meet its return target in 2022/23.”
Sterling unmoved by BOE Intervention
The Bank of England (BOE) surprised markets yesterday by intervening in the gilt markets by pledging unlimited purchases in long dated Government bonds which had an immediate impact on the Gilt market significantly lifting the price of those bonds and sharply reducing the yields. The BOE also delayed the start of its plan to start actively selling its existing holdings of bonds, which was due to begin next week. Sterling however, fluctuated a little but continued to trade as the weakest currencies of the day.
However, over night, is a USD lead move, Sterling attempted a mini recovery as the dollar retreated and US stocks rebounded, despite Apple spooking markets by saying it wasn’t ramping up Iphone production (Apple was the exception in the broad stock rally). Overnight, DOW rose 1.88%. S&P 500 rose 1.97%. NADSAQ rose 2.05%. The pound is currently hovering around $1.08.
The Prime minister Liz Truss has stood by her plans for tax cuts in an radio broadcast this morning, despite the ongoing market turmoil, IMF criticism and the Bank of England’s intervention in gilts markets. Following this statement the FTSE 100 was down over 1%.
No U-turn on Budget despite market turmoil
Treasury Minister Andrew Griffith says the Government will not abandon its mini-Budget, despite Labour calling for a U-turn on the tax-cutting measures which have sparked a fall in the pound and a surge in borrowing costs.
Mr Griffith insisted that the Government’s proposals are “the right plans,” adding that they will make the UK economy competitive and deliver growth. This comes after the International Monetary Fund warned that the measures announced by Chancellor Kwasi Kwarteng last week were likely to fuel the cost-of-living crisis. The market turmoil seen since the mini-Budget has prompted the Bank of England to announce it will buy government bonds on a temporary basis to help “restore orderly market conditions.” Mr Griffith said the Bank had “done their job” by announcing it would buy government debt to stabilise the economy.
Elsewhere, MP Mel Stride, chairman of the Treasury Select Committee, has criticised the Government for not publishing a forecast of the UK’s economic outlook from the Office for Budget Responsibility, saying it could have been used to reassure the markets and show that the plans are “fiscally credible.” Meanwhile, Labour leader Sir Keir Starmer yesterday called for Parliament to be recalled so MPs can overturn last week’s mini-Budget.
Chancellor’s tax plans will add less than 0.1% to GDP
Analysis suggests that Kwasi Kwarteng’s huge tax cuts are unlikely to boost the UK economy toward his target of 2.5% annual growth, with it suggested that the Chancellor’s economic plan will add less than 0.1% to GDP each year while costing £82bn in debt interest over five years.
The report from the Tony Blair Institute (TBI) and independent advisory firm Oxford Economics warns that the package of £45bn of unfunded tax cuts offers “all pain, little gain for the UK taxpayer and our economy.” It will, the study argues, leave a “yawning fiscal deficit” by generating just £6bn in extra receipts. TBI chief economist Ian Mulheirn said: “Our forecast suggests that the plan will boost growth by less than 0.1% per year between now and 2027/28.”
CBI chief urges Government to show it can boost growth
Tony Danker, director-general of the Confederation of British Industry, says ministers must deliver reforms to show that the Government can boost economic growth. With markets shaken after the Government announced huge tax cuts, Mr Danker said the markets’ reaction “matters because the markets are lending us the money.” He added: “Every day, every week, every month, the Government will now be critiqued by markets and businesses on how serious they are about growth and about their fiscal responsibility to pay back debt.” Insisting that growth “must come before other Conservative doctrine,” Mr Danker said: “On immigration, the economy is clearly suffering from labour shortages … On net zero, this is one of the golden opportunities of our age.”
Costs could put the brakes on automotive sector recovery
Data from the Society of Motor Manufacturers and Traders (SMMT) shows that the UK’s automotive sector has seen its fourth consecutive month of growth. The figures show 49,901 units were built in August, with this a 34% year-on-year increase. Despite this, experts have warned that inflation and a weakened pound could threaten businesses. A survey from the SMMT shows that 70% of members are worried about the impact of soaring energy costs on operations, making this the single biggest concern for UK automotive makers. KPMG’s UK head of automotive Richard Peberdy said inflation and a weakening pound were driving up costs, adding: “Passing costs to the consumer is becoming increasingly challenging.”
Food inflation hits record high
Food inflation has surged to the highest rate ever recorded on an index launched in 2005. The British Retail Consortium and NielsenIQ shop price index shows that food inflation hit 10.6% in September, up from 9.3% in August. For fresh food, price inflation is at 12.1%, compared to the 10.5% recorded in August. Overall, shop price annual inflation accelerated to 5.7% in September from 5.1% last month. Non-food inflation stood at 3.3% in September, with this just above the three month average of 3.1%.
Starmer suggests Labour could tax wealth more heavily
Sir Keir Starmer has suggested that Labour could tax wealth more heavily if elected into power at the next election. Speaking to LBC Radio, the Labour leader rejected the suggestion that he wanted to impose a wealth tax but said he was “looking at how we tax fairly.” Sir Keir said: “On wealth, I am looking at whether and how we tax all different forms of income.” He added: “Some people obviously earn their income through a wage, other people earn it through stocks and shares and dividends and we are looking at what is a fair way to tax all income wherever it comes from.” When it was put to him that it sounded like a wealth tax, he argued: “No, it is not really a wealth tax. It is looking at different forms of income, it is stocks and shares and dividends.” Sir Keir has already said that Labour would reinstate the 45p top rate of income tax and go ahead with a corporation tax increase that the Government has vowed to scrap. He also said the party would impose a windfall tax on oil and gas firms and change non-dom status for taxpayers.
Record decline in mortgage deals
Lenders yesterday pulled a record number of mortgages in a single day, with data from Moneyfacts showing that there were 935 fewer mortgage products than 24 hours earlier. This is the steepest one-day decline since the firm began collating the data in November 2011 and is more than double the previous record of 462 seen in April 2020. The analysis shows there were 2,661 mortgage products available on Wednesday, down from 3,596 on Tuesday and 3,880 on Monday. The number of home loan deals available has been steadily declining since the Chancellor announced massive, debt-funded tax cuts and billions of spending in last week’s mini-Budget. Before Kwasi Kwarteng’s announcement on Friday, there were 3,961 mortgage products to choose from.
Borrowers set to see tougher mortgage rules
Borrowers could have to prove that they can afford interest rates of up to 7% to qualify for a mortgage. This comes amid the market turmoil stemming from the mini-Budget, with the Bank of England now predicted to deliver a steeper and swifter increase to interest rates. With the base rate forecast to hit 5.5% next year, potential homeowners would see a knock-on effect as affordability rules require banks to test whether borrowers can afford a mortgage at one percentage point above future expectations of the base rate – or their lender’s standard variable rate. This means borrowers could have to prove they can afford mortgage rates of 6.5% or 7% when fixing for up to five years.
Mortgage costs could see house prices slump
Analysts have warned that soaring mortgage costs could force millions of homeowners to sell up, with this potentially leading to a property price crash. Analysts at Credit Suisse said a perfect storm of higher interest rates, inflation and the risk of recession could see house prices fall by up to 15%. The market has been hit as lenders have pulled hundreds of mortgage deals amid fears interest rates could climb to 6% next year. Andrew Garthwaite at Credit Suisse said: “The 8% decline in sterling since August 1 should add a further 1.3% to near-term inflation. On current swap rates, the average mortgage will be 6.3%. House prices could easily fall 10% to 15%.” Elsewhere, Andrew Wishart, a senior property analyst at Capital Economics, said a significant drop in house prices is “inevitable” as rising interest rates push up mortgage rates and reduce the size of loans lenders can offer.
Bank move driven by fears over pension funds
The Bank of England pledged to buy £65bn of Government bonds (SEE ABOVE) after last week’s mini-budget sparked turmoil on financial markets and the pound plunged.
The Bank said its decision to buy the bonds at an “urgent pace” was driven by concern over “a material risk to UK financial stability.” There had been concern that a collapse in the price of bonds was forcing some pension funds to sell gilts and assets, further forcing down the price, with a risk that the pension funds could have got to a position where they were unable to pay their debts.
The Pensions Regulator said it is monitoring financial markets closely for their impact on the funding of defined benefit, or final salary pension schemes, with a spokesperson saying the regulator welcomes the Bank’s efforts to “restore orderly conditions” through temporary purchases of long-dated bonds.
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 charge our members a fixed annual subscription irrespective of how high the debt value is!
It takes less than 17 minutes to see how you would benefit, do you have the time now?
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
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.