Tag Archives: interest rates

Signs of economic recovery in the UK – depending on your viewpoint…..

In the last month or so I have attended various events where the subject of the UK economy has been a major topic. It is clear that the perception or otherwise of a slowly recovering UK economy is dependent on whether you are being targeted as a voter or a business, especially an SME company. Five years of record low Bank of England base rate however has left savers out of pocket against inflation but borrowers getting better deals. The problem for businesses who have been surviving with low interest rates is what happens when they rise, even by small increments.

The public perception, being generated by politicians and those picking the most apt economic statistics, suggest the worst is over and growth is picking up, unemployment falling and house prices booming. It is however questionable whether fuelling the economy with “help to buy” for new and other property values of £600k actually helps the banks to lend more. It also allows buy to let landlords cash-in but hopefully stimulates more movement in the property market for first time buyers and those who have held back on moving recently. The warning signs are that possibly interest rates will rise earlier, that has an impact on mortgage rates and repayments and that year after year there are significant increases in utility, food and fuel costs that outstrip increases in wages, let alone the inflationary impact.

From a business perspective the view of how government and the banks are helping business is somewhat different. The larger corporate businesses have survived in the main and retrenched by holding cash rather than borrowing, investing or acquiring companies, but this may change. The SME companies however are still finding it hard to get appropriate and cost effective funding from the banks with some not wishing to be rejected with the additional information and forecasts being demanded as part of the loan negotiations. Potentially rising interest rates, consistently high business rates and rents are being pushed upwards. One of the costs that will impact a vast number of smaller businesses in the next year is auto enrolment for pensions with all the associated costs and administrative burden being with the companies.

It is not all doom and gloom but it does look that the recovery of the economy is going to be over a number of years, and certainly after the next UK election, due in 2015.

Beware the Ides of March……………..

One month to go before the end of the tax year and the banks and pension investors are inundating us all with the “use your ISA allowances” and “maximise your pension contributions before the changes next tax year”. Interest rates remain pitiful and again the rates are being reduced across the board yet again on all taxable and tax free savings and investments. Even dividend yields are falling, some of which driven by increases in share values. Possibly now may be the time to invest in shares and the FTSE hitting a five year high this week would seem to indicate that investors are coming back into equities.

All the above assumes that consumers, who have been suffering for the past five years with increased food, fuel and transport costs, coupled with little or no wage increases, (for those who have a job), have any spare money to save. For any employees who do not currently belong to any type of pension scheme there is potentially another outflow, (albeit with a longer term benefit), the auto enrolment by companies and their employees into the NEST pension scheme or equivalent.

Many smaller companies do not know;-

  • Their company’s auto enrolment date
  • How many employees are affected, depending on their annual salary
  • What changes are required from a payroll and HR perspective
  • Communications and financial controls
  • Cash flow implications with employers having to contribute on an increasing sliding scale over the next few years

MW Interim Finance has recently assisted in providing some thought provoking feedback on the above to a business who employs a large number of temporary and part-time workers, as well as a permanent workforce. It was a complicated scenario that required a thorough knowledge of the HMRC rules to ensure the company planned its strategy accordingly.

This is just one aspect of how MW Interim Finance could help your business; from operational issues through to restructuring and managing strategic change effectively.

What goes around comes around…..

The UK appears to be showing the signs of a possible second recessionary phase with a retail malaise and consumer confidence shaky at best. Consistently high fuel price rises, increases in utility costs around the corner and food inflation forcing households to review their weekly spend. Interest rates’ remaining static has become the “norm” over the last year or so but this will not continue. Is the “double dip” going to become a reality?

 The prognosis on growth has been reduced by both the Government and the IMF and with companies regularly going into administration, and continued cut-backs by businesses, it would appear that the Japanese stagflation model may be mirrored in the UK over the next few years.

It is not all doom and gloom with a number of businesses becoming more focused and streamlined with even some growth opportunities being exploited. Many businesses who have survived through the prolonged downturn are now looking ahead to the future.

Utilising an independent business resource is one way of stimulating a business to review, plan and invest for an economic upturn and to maximise potential opportunities. MW Interim Finance provides independent professional finance support to assist is implementing achieve your strategic and operational objectives.  Visit www.mwinterimfinance.co.uk for further details.

UK base rates, inflation and unemployment – same old story but with worsening figures

Interest rates remain at 0.5% in the UK, but for how much longer as record monthly leaps in food and transport costs raised the consumer prices index (CPI) to 3.7% in December 2010, (up from 3.3% in November), according to the Office for National Statistics. Continued high level rises in food and fuel prices could send the inflation rate to 5% by the autumn, economists warned.

There is some suggestion that interest rates will have to rise to mitigate inflationary pressures however, pushing up interest rates may be a welcome relief for net savers but it is likely to have a greater adverse impact on those with mortgages and other borrowings.

The housing market is already falling back from the small gains during the last twelve months and, with an increasing level of job losses in 2011 possible, (currently at just under 2.5 million or 7.9%), any consumer confidence could be wiped out and the UK could slip into another economic downturn or consistent low growth period for the foreseeable future.

UK coalition emergency budget – All Pain and No Gain?

The much awaited “austerity budget” is due on 22nd June and both individuals and business communities await the various instruments of torture to be applied to direct and indirect taxation, benefits and spending cuts. There will be a lot of pain but how much can the electorate stand, noting that even if the election had provided another result the same impact would have resulted in the attempts to repair the damaged economy.

Key issues – repayment of UK debt whilst keeping inflation down, (currently around 3.5%), and interest rates as low as possible, (base rate at 0.5% for 15 months), and growing the economy. 

The backdrop to achieving target reductions are;-

Public Sector Pensions – in the past these have been self balancing within a few million £ but the current deficit is about £4 billion per annum with this rising to £10bn by 2015. The questions are; – why the situation has been allowed to get “out of control”, why should the private sector subsidise this and the whole population suffer cuts in public spending and tax increases. It is understood that private sector pensions have been dealing with deficits and surpluses for many years, but Government has never addressed the issue or even appeared concerned.

Unemployment – officially 2.5 million but with another 8.2 million, (over 20% of the working age population) unable to or not wanting to work – with the former being a significantly higher proportion!! Tax increases mooted in VAT, CGT and benefit reductions may provide a temporary boost in spending prior to their introduction, but then there is the re-stagnation of the economy with unemployment likely to rise even more. 

Interest Rates – at 0.5% for over a year and in theory great for those able to borrow, (albeit that rates are well over the base rate), and remaining at this level possibly into 2011, but a pittance for savers.

Inflation – even if it falls to the 2% target, (currently 3.5%), this is well over the ability of many people to maintain real income, with pitiful savings rates and many in employment already suffering wage cuts or freezes.

The above shows some of the pain but with so much uncertainty for the consumer, business, the economy in general and the ongoing Eurozone debt crisis posing threats to UK growth prospects, there is no real sign of when the gains will be seen by the private individual or business community.

Volcanic Ash Cloud……..is it just smoke and mirrors?

The best news in the last week for the political parties in the run up to the UK election has been the Icelandic ash cloud that has engulfed most of Northern Europe over the last few days. Apart from causing travel chaos to thousands of people and costing the travel and ancillary industries millions in lost revenues, there have been enormous “green savings” due to reduced carbon emissions.

The Liberal Democrats have benefited the most as the opinion polls seem to show they possibly have potentially a bigger influence in the next Government than expected by the Conservatives or Labour, following the first live UK election television debate. However, the big issues still remain and also the uncertainty of how anyone in power will tackle them, especially as many of these will not be resolved during the next five years.

Whatever the outcome of the election, hung parliament or a majority winner, addressing UK debt, public sector spending cuts, tax increases, health, education, decline of sterling, interest rates and inflation indicates a slow recovery plan over a number of years to bring prosperity back to businesses and consumers.

UK Election fever – or is it all media hype?

At last the 6th May 2010, a date for the nation to decide on the next few years of Government. Which party, if any, will have the majority of the country’s vote and more importantly what will be the turnout level. The media have already done enough in the first few days since the announcement to put off would be voters by smothering us with their coverage and opinions on the state of each major party and the main issues as they see them.

Forget the nuances of tax and pensions for the top earners, it is the average and lower paid, unemployed, pensioners and businesses that need convincing on how politicians will deal with long term UK national debt, employment, interest rates, sterling, healthcare etc. Local authorities not delivering and high council tax levels are where the majority of the public see Government in action, (or not). Hospitals, education, re-cycling, road maintenance, (potholes and line painting), emergency services are a few of the issues to be addressed.

This is probably the most important election in decades and the media and politicians have the opportunity to engage with the nation and get everyone interested in the recovery of UK plc, but delivering change will involve some pain for all.

UK Interest Rates, GDP revision and Sterling takes a “pounding”

The Bank of England kept interest rates at a record low of 0.5% for the 12th consecutive month on Thursday, a decision widely expected as any rise in the cost of borrowing could damage the UK’s fragile economic recovery. The bank has not pumped any more money into the economy under its quantitative easing (QE) but may have to restart its asset-buying programme, (QE), if the economic outlook deteriorates, but many analysts are predicting monetary tightening later this year. It appears that the “tensions that underlay the build-up of large world imbalances have not been resolved” and the UK’s largest export market, the euro zone economy, has stalled.

Despite the upward revision to GDP in the fourth quarter of last year, to 0.3% from an estimate of 0.1%, the economy remains weak. Businesses are still under serious pressure and the threat of a double-dip recession is more serious in the near future than risks of higher inflation.

The pound took a pounding last week and suffered its biggest one-day fall for more than a year amid the prospect of a hung Parliament, after the election mooted to be in early May this year. There are fears that this will prevent swift and decisive action being taken over Britain’s public finances. Sterling fell to under $1.50 for the first time in ten months and today closed at $1.51. Against the Euro it is only €1.11 and has remained at this level for some time, despite debt issues in Greece and Portugal putting pressure on the Euro.