On the Spot
By Company Watch
On the SpotMay 23, 2023
9: Kirsten Tompkins - EY - Q1 Profit Warnings
We are delighted to once again welcome Kirsten Tompkins back on the show. Kirsten is a Market Analyst and Content Creator in Turnaround and Restructuring at EY-Parthenon, the strategy consulting arm of EY.
Kirsten is the coordinating editor and data analyst for EY-Parthenon’s Quarterly Analysis of UK Profit Warnings. Kirsten joins the show to discuss the latest Q1 2023 report, 'On a Knife Edge'.
Revised forecasts show that the UK economy is on track to avoid a technical recession in 2023, but EY's profit warning data suggests it could be experiencing a ‘rolling recession,’ where waves of pressure cause individual parts of the economy to contract in turn.
Banking stresses and higher-than-expected inflation also serve as a reminder that the recovery is still on a knife edge.
Profit warnings rose dramatically in the technology and telecommunications sectors in Q1 2023, as uncertainty and cost pressures continued to pass down supply chains. 35% of profit warnings in Q1 cited contract delays or cancellations.
Although recession has moved off the agenda, the range of possible outcomes is wide, and uncertainty remains a significant challenge in 2023.
8: Lara Biermann - SCHUMANN
SCHUMANN, headquartered in Göttingen, is a German family-run company that offers consulting and IT solutions in the areas of credit risk, compliance, and portfolio management systems.
Lara Biermann is Head of Sales Credit & Surety at SCHUMANN and advises and supports international credit risk insurers, and surety bond providers, in digitising and automating their risk and business management processes.
Craig Evans sat down with Lara to discover more about the role she fills at SCHUMANN, and the winding career that brought her there. Lara speaks about the key risks that her clients are facing, in particular credit insurers, and how SCHUMANN helps to solve them with risk analysis software that makes sense of the vast overload of data in 2023.
7: Nick King - Iron Mountain
Iron Mountain is a global business dedicated to storing, protecting and managing, information and assets. From critical business information to geological samples, works of fine art, and even the Iron Throne from the hugely popular Game of Thrones series!
Nick King is a Senior Order to Cash Integration Manager for the MENAT region focused on billing, cash applications, disputes and cash collection. Nick leads order to cash teams across 12 countries. Craig Evans sits down with Nick to gain insight into his world, the role he fills at Iron Mountain, and the career that brought him there. Nick has a strong background in credit management and sheds light on the ins and outs of the industry, offering a unique perspective gained from years of experience. Learn what the hot topics in credit risk are for Iron Mountain and why spotting risk at the onboarding stage is critical.
6: Courtney Rickert McCaffrey - EY - Geostrategic Outlook
The EY Geostrategic Business Group uses geopolitical insights and analysis to help clients inform their business operations and strategy. Courtney is a recognised thought leader in the political risk and global macro trends space and is based in Washington, DC.
Courtney's role as a Global Insights Leader is to drive research, analysis, and insights for publication, such as the 2023 Geostrategic Outlook - which forms the cornerstone of this episode's discussion.
Adam and Courtney explore the current geopolitical environment and discuss how companies can build a more robust strategy for an increasingly volatile world. Geopolitical developments are likely to continue to influence supply chain strategies, shift investment destinations and push up costs for companies throughout the year.
Take a look at the top 10 geopolitical developments EY's Geostrategic Business Group have identified to have the most significant impacts on organisations across sectors and geographies in 2023.
5: Sue Chapple - CICM Chief Executive
The CICM is the largest recognised professional body in the world for the credit management community and is the trusted leader in its field representing all areas of the credit and collections lifecycle. Sue has over 25 years of experience in operational credit management across finance, utilities and the public sector.
We explore the world of credit management with Sue and learn more about her life and career, which has led her to become Chief Executive of the CICM.
Good business practices, improving cash flow, and the future role of technology in credit management are all hot topics in this episode. AI-powered credit scoring certainly has a bright future in the credit industry, and Craig shares how Company Watch is leading the way with innovative tools that are making the best use of the technology.
Sue explains how the CICM continues to help support businesses in an increasingly difficult economic environment, where risk is becoming harder to predict, and paying on time is still as important as ever.
4: Kirsten Tompkins - EY - Q4 Profit Warnings
UK-listed companies issued 83 profit warnings in Q4 2022, bringing the total number of profit warnings to 305 in 2022 (50% higher than in 2021).
We were delighted to once again welcome Kirsten Tompkins back On the Spot. Kirsten is a Market Analyst and Content Creator in Turnaround and Restructuring at EY-Parthenon, the strategy consulting arm of EY.
As the coordinating editor and data analyst for EY-Parthenon’s Quarterly Analysis of UK Profit Warnings, Kirsten joins us to discuss the latest Q4 report, 'Universally Challenged'.
It's clear in the report that profit warnings are coming thick and fast from across the economy, as cost pressures pass through supply chains, falling confidence hits spending and contract renewals, and credit tightens. For the first time since 2009, credit tightening triggered over 10% of warnings in a single quarter in Q4 2022.
Unsurprisingly, consumer-facing companies still led profit warnings in Q4 2022. Changing consumer behaviour and the cost-of-living crisis will no doubt keep the pressure on consumer sectors throughout 2023.
SMEs have taken the main brunt of economic pressure so far. But in such febrile markets, stress is contagious, and no company or sector can really consider themselves immune...
3: Kenny McKay - Interpath Advisory
Interpath is a financial advisory business with a broad range of specialisms helping clients to face challenges or to find new opportunities to grow.
Kenny specialises in the transformation and restructuring of organisations, in both the public and private sectors, and leads their Northern team and industrials practice.
Kenny talks about his career and experiences within restructuring. He also discusses where he is seeing stresses and strains across different industries and how Interpath can help businesses ride out the economic cycle.
Interestingly, the volume of corporate administrations remains below pre-pandemic levels. Many businesses survived the pandemic utilising government support measures, but it is expected that insolvency figures will continue to rise as businesses are impacted by price pressures, upcoming debt maturities and weakened consumer demand.
2: Peter Arnold - EY UK Chief Economist
Peter Arnold, EY UK Chief Economist, joined Adam Stones for episode 2 of the 'On the Spot' podcast!
Peter leads the economic policy team at EY in the UK and has over 20 years of experience in advising both government and private sector clients in the UK and internationally on economic policy impact assessment, regulation, and in interpreting macroeconomic forecasts for business planning.
He joins the show to discuss the Winter Forecast of the EY ITEM Club, a leading UK economic forecasting group, whose forecasts are independent of any political, economic or business bias. The Winter Forecast was published in late January. (Link to report in comments).
2022 saw a global energy price shock, inflation running at a four-decade high rate, political turmoil, and the sharpest tightening in monetary policy since 1989…
Unsurprisingly there was a lot to cover in the episode! Here are just some of the key talking points from the ITEM Club's forecasts:
- Recession - the UK economy is now expected to contract 0.7% in 2023, bigger than the 0.3% contraction predicted in October.
- Labour market - unemployment is forecast to peak just below 5% this year.
- Consumer spending - is likely to fall 1.4% this year, with growth of 2.3% expected in 2024.
- Business investment - likely to remain a relatively weak spot. EY ITEM Club now expects a fall of 0.8% this year. Weaker business investment is one of the factors likely to slow the recovery from the recession.
1: Paul Wilson - Federation of Small Businesses
Kicking off series 3 is Paul Wilson!
Paul is the Policy Director at the Federation of Small Businesses. The FSB aims to provide a powerful voice for the UK’s 5.5 million small businesses and the self-employed. Paul’s policy team publishes regular reports on a range of topics, their recent report ‘Credit Where Credit's Due’ is all about small businesses and their need for external finance to grow.
59% of small businesses have applied for external finance over the last five years, and only 37% of those firms found the application for traditional loans easy…
There has been an alarming reduction of nearly half a million small businesses over the last two years. Given recent economic turmoil, there is a risk of another credit crunch where the UK financial market may begin squeezing lending to small businesses, reminiscent of the period following the 2008 financial crash.
Small businesses sit at the heart of their communities and external finance needs to remain as accessible as possible to help firms in these difficult times.
Key talking points:
- Small business finance market – what is the state of play given the current cost-of-doing-business crisis and interest rate hikes?
- The demand for capital – why do small businesses need finance and where are they looking to invest?
- What challenges do small businesses face this year?
33: Kirsten Tompkins - Q3 Profit Warnings
UK-listed companies have issued the highest third-quarter total of profit warnings since 2008.
57% of those profit warnings came from companies citing rising costs as a key issue as they struggle to pass on costs to consumers, with over half of all warnings coming from consumer-facing sectors.
'On the Spot' once again is Kirsten Tompkins. Kirsten is a Market Analyst and Content Creator in Turnaround and Restructuring at EY-Parthenon, the strategy consulting arm of EY.
As the coordinating editor and data analyst for EY-Parthenon’s Quarterly Analysis of UK Profit Warnings, Kirsten joins us to discuss the Q3 report, 'Predictably unpredictable'. Kirsten returns to the podcast after discussing the Q2 report with us in late July.
So far this year, profit warnings have been driven by increasing costs, supply chain and labour market issues, a weakening in consumer confidence over the summer and, more recently, the fall in sterling. With so many uncertainties in the outlook for 2023, management teams should focus on developing resilience to avoid further warnings and more profound consequences…
32: The Autumn Statement
After a whopping 109 episodes, this is Jo's final episode as host of the 'On the Spot' podcast! What an incredible achievement.
Last week, Chancellor Jeremy Hunt revealed his Autumn Statement in the House of Commons. He unveiled tax rises and spending cuts worth billions of pounds, intended to fix the UK's struggling finances.
There was some good news for high street retailers with the business rates revaluation. Retailers have long argued that they carry a disproportionate share of the burden of business rates, a tax on commercial property (based on rental value) that penalised high street retailers and advantaged e-commerce companies, as shoppers switched to buying online in recent years.
The UK's unemployment rate rose to 3.6% in the three months leading up to September, up from 3.5% in the previous period, according to figures from the Office for National Statistics. There are 330k people less in work now than in pre-pandemic times, this is largely in part down to an increase in the number of people unable to work due citing long-term health issues.
The Bank of England has warned that unemployment will nearly double by 2025 as the UK goes through a tough recession.
The Office for Budget Responsibility (OBR) also released forecasts warning that real disposable incomes would drop by 7.1% over the next two years, the biggest fall in living memory...
31: Bank of England - November MPC Minutes
The Bank of England (BoE) Monetary Policy Committee met earlier this week and voted by a majority of 7-2 to increase the Bank Rate by 0.75 percentage points. The increase marks the biggest since 1989 and the eighth time in a row the bank has hiked interest rates. Looking back to November 2021, the base rate was just 0.1%...
Since the MPC’s previous forecast in August, there have been significant developments in fiscal policy. The Bank's overall forecast for the economy looks grim, output has already begun to contract and will go on falling for the next two years, creating the longest recession of modern times.
The unemployment rate is expected to rise to just under 6.5% by the end of the forecast period (2025) - up from 3.5% in the three months to August, its lowest level since 1974. This would be a considerable rise in unemployment and will affect consumer spending which has multiple adverse impacts on the economy.
Of course, soaring borrowing costs heap more pressure on indebted UK firms. For companies in need of finance to expand, or to just survive, rising interest rates and inflation make a scary combination (especially as recession looms).
For British businesses which have loans at a variable rate, or need to refinance, rising interest rates will have a marked effect on costs and profits. At Company Watch we have long warned about “zombie firms” being kept alive by debt while paying low-interest rates... well, these firms could soon face a reckoning.
CPI inflation was 10.1% in September and is projected to pick up to around 11% in 2022 Q4.
Prime Minister Liz Truss apologised yesterday for her controversial mini-budget that crashed the country’s currency, rattled financial markets, and led to the sacking of the then Chancellor, Kwasi Kawrteng.
Jeremy Hunt, former foreign and health secretary, has succeeded Kwasi Kwarteng as Chancellor. He is the UK's fourth Chancellor so far this year and faces huge challenges with prices soaring and hikes in interest rates.
Nearly all the original tax cuts announced in the government's mini-budget are being reversed. In a statement on Monday morning, Hunt said the 20p basic tax rate would remain indefinitely and reversed a swathe of other tax measures, including changes to dividend taxes, a VAT-free shopping scheme, and a freeze on some alcohol duties. The stunning reversal would raise £32 billion.
Government bonds, currency, and shares rallied on Monday off the back of the news.
29: GDP decline as recession looms
The UK economy unexpectedly declined in August by 0.3%, reinforcing predictions that it will fall into a recession later this year. The surprise drop came as factories and consumer-facing businesses struggled the most. Prices are rising at their fastest rate for 40 years and outpacing growth in pay, so consumer-facing businesses will feel the impact of tightening purse strings the most.
The number of companies filing for administration jumped 50% (265) in Q3 2022, as economic headwinds continued to wreak havoc on businesses up and down the UK. Interpath suggests by the end of Q4 this year insolvency levels will have risen even further. Interest rates are highly likely to be above 5% by April next year, putting increased pressure on cashflows for businesses with high debt levels - so increased numbers of administrations are expected...
28: On the brink
The Bank of England (BoE) has defended its intervention in the UK government debt market, saying it stepped in to avoid a £50bn fire sale of gilts that would have taken the UK to the brink of a financial crisis.
In a letter to the chair of parliament’s Treasury committee, Sir Jon Cunliffe (the BoE’s deputy governor for financial stability) said the bank had feared there would have been a “self-reinforcing spiral” that threatened “severe disruption of core funding markets and consequent widespread financial instability”, had the BoE not stepped in.
The letter also shed light on warnings received by the BoE ahead of its intervention. Managers of the liability-driven investment strategies at the centre of a crisis in Britain’s pension fund industry had warned as early as September 23rd that the huge moves in gilt yields would force them to dump large quantities of government debt.
Interest rates - more than 40% of all mortgage products were pulled after chancellor Kwasi Kwarteng's 'mini-Budget announcement and the interest rate on a typical two-year fixed-rate mortgage has now breached 6% for the first time in 14 years.
27: The Mini-Budget & The Pound's Collapse
Last week the new chancellor, Kwasi Kwarteng, delivered his mini-budget. One of the tax cuts announced is a cut in the basic rate of income tax (by 1p in the pound) is to be brought forward by a year to April 2023.
As a result of the sweeping tax cuts announced last week, the pound has hit a record low against the dollar, sparking a currency crisis. Of course, a sudden drop in the pound immediately creates uncertainty, throwing UK businesses that import and export goods into a panic. A weak pound means price rises for UK consumers who buy foreign goods and less money in holidaymakers' pockets.
A key issue is the price of oil, being one of the key goods Britain imports and is priced in dollars. At the beginning of the year, a $100 barrel of oil cost £74. That same $100 barrel now costs £95... an enormous rise and one that will directly hurt consumers at the fuel pump.
There were also 1,933 business failures in England & Wales in August, up 42% from pre-pandemic levels. 87% of failures this year have been CVLs, and the total number of insolvencies in 2022 now stands at 14,484. Annualised, 2022 stands to have the highest number of insolvencies on record, ever.
All this amounts to deeply worrying times for those of us that manage risk.
26: The PM's To-Do List
Liz Truss won the Conservative Party leadership contest yesterday, with 57% of member votes - and has now been formally appointed the 15th British prime minister. However, there's no time for celebration and Liz Truss will need to sharpen her pencil - with a to-do list as challenging, as it is long, standing in front of her.
The new PM has pledged to cut taxes and 'deliver' on tackling the energy crisis. A plan to help consumers with soaring energy costs is set to be announced this coming Thursday. Business energy fees are a huge problem with no current price cap in place. Pubs, restaurants, shops, and hairdressers, along with all other businesses, are receiving energy bills which, in some cases, show over a 500% increase over previous bills. This is before we even head into winter and temperatures are still mild...
Annual growth in credit card borrowing went up 13% in July – the highest rate since October 2005. The average interest rate on credit card borrowing is currently 21.17%... the highest level since 1998. Many consumers are being forced to turn to credit to pay for essential items, with real wage growth being continuously outpaced by inflation.
There were also 1,827 company insolvencies in July, up 27% vs. pre-pandemic July 2019 - the vast bulk of these insolvencies still coming from CVLs. The Bank of England MPC will meet once again this Thursday, with another interest rate hike expected to be announced.
25: Bank of England - August MPC Minutes
Yesterday, the Bank of England (BoE) lived up to its promise to act “forcefully” to curb surging inflation, by announcing the biggest increase in interest rates in over 25 years (1.25% to 1.75%). The BoE has also warned that Britain will fall into a recession later this year. The interest rate is now at its highest level since 2008, as the bank grapples to control soaring inflation, (currently at 9.4%) which is well above its 2% target and is forecast to pass 13% this year.
The National Institute for Economic and Social Research (NIESR) made a similarly downbeat prediction this week. The NIESR forecast that Britain would now experience a consecutive three quarters of negative growth, with unemployment peaking at 5%.
Company insolvencies are on the rise too, there was an average 30% increase in the number of company insolvencies (across all industry sectors) in Q2 2022, compared to the pre-pandemic Q2 2019...
24: Kirsten Tompkins - Ernst & Young
'On the Spot' this episode is Kirsten Tompkins, Market Analyst and Content Creator in Turnaround and Restructuring at EY-Parthenon, the strategy consulting arm of EY.
Kirsten is the author of EY thought leadership articles and blog content, providing market and company analysis. She is the coordinating editor and data analyst for EY-Parthenon’s Quarterly Analysis of UK Profit Warnings and joins the show to discuss the latest report, 'The Oncoming Storm' (Q2 2022).
Companies are facing an economic vortex that will challenge even experienced management teams. We're only halfway through 2022 and there have already been a recorded 136 profit warnings, 66% more than at the same point last year.
At the start of 2022, profit warnings were primarily triggered by cost and supply issues, which hit exposed companies extremely hard, but left many others unharmed. As the year progresses, however, demand headwinds amid falling consumer confidence are set to have a much blunter impact, exposing more underlying stresses.
Kirsten also explains the link between profit warnings and insolvency. A twenty-year analysis of EY data, issued in 2019, showed that one in five companies warning three times in a 12-month period delists within a year, mostly due to insolvency. After a brief hiatus during the pandemic, the three-warning rule is well and truly back.
But it’s not just the strength of the headwinds that are making 2022 so challenging. It is their combination and interplay with prevailing disruptive forces that have left governments, central banks, and companies facing difficult, almost impossible, choices. How companies navigate these choices will make a substantial difference between success and failure. Hard choices inevitably lead to hard impacts...
23: Marian Berden - Schumann International
'On the Spot' this week is Marian Berden, Business Expert - Credit & Surety at Schumann International. Schumann specialises in developing credit risk management solutions for corporate and financial institutions. Marian has over 15 years of experience in credit and political risk underwriting and has held various senior risk roles in the London teams of Atradius Special Products, Axis, Equinox, and Nexus Underwriting Ltd.
Nick and Jo discuss with Marian the role of automation in financial risk analysis and explain the key questions that need to be asked in this current period of economic volatility.
22: May GDP & June Insolvency Figures
The UK economy unexpectedly returned to growth in May, largely fuelled by a boom in holiday bookings and a significant rise in GP appointments.
The ONS said GDP rose by 0.5% in the month, after a revised 0.2% decline in April. Economists had expected zero growth amid fears over the impact of the cost of living crisis. However, if you take a closer look, it's clear some sectors are struggling - consumer-facing services fell by 0.1% on the month, which would indicate the cost of living crisis is beginning to bite.
Nick and Jo also investigate the June insolvency figures. The number of registered company insolvencies fell 7.2% to 1,691 in June 2022, compared to May 2022.
Although June 2022 insolvency figures were still 40% higher than June 2021, and 15% higher than the number registered three years previously (pre-pandemic; 1,467 in June 2019). There were 1,456 Creditors’ Voluntary Liquidations (CVLs) in June, making up the vast bulk of insolvencies. A Creditors’ Voluntary Liquidation is a process that enables Directors to formally close an insolvent company voluntarily.
The fall in corporate insolvencies matches May’s unexpectedly positive GDP figures – however business owners should not be complacent given the ongoing economic pressures which will start to be felt in insolvency numbers in the next few months...
21: Light at the end of the tunnel?
Is there a light at the end of the tunnel, or is it just the headlights from the speeding train coming straight at us?
Last Wednesday, the European Central Bank (ECB) held a summit in Portugal and is set to trigger its first rate hike in over a decade at its next meeting on July 21, as inflation in the eurozone surges.
'Bringing down high inflation around the world will be painful and could even crash growth but must be done quickly to prevent rapid price growth from becoming entrenched', the world's top central bank chiefs said. The most memorable statement from Wednesday's summit came from Fed Chair, Jerome Powell - "I think we now understand better how little we understand" when speaking about inflation...
Another talking point is productivity. Britain’s productivity growth has lagged the rest of the G7 “throughout much of the post-war period, which seems to indicate a deep structural problem,” according to the National Institute of Economic and Social Research (NIESR). There has been a real stagnation of UK productivity since the recession of 2008/09, so how can this productivity puzzle be solved?
Productivity growth is typically characterized by economists as the key to improving living standards, boosting overall output, and controlling inflation.
20: More Inflation...
Prices are continuing to rise at their fastest rate for 40 years with fuel and energy prices being the biggest drivers of inflation, but the ONS has said food costs have pushed it up even further.
The UK is currently dealing with labour unrest not seen for decades - this has been very visible in railways, London Underground, and British Airways. Doctors, teachers, and other public sector workers may yet join in.
Inflation is of course, bad... and so is the cure. Inflation will not magically disappear, so the way to end it is through a period of low output and rising unemployment. This creates stagflation (high inflation + weak growth) that lasts for a prolonged period and will likely require more than one tightening before it ends.
The Organisation for Economic Co-operation and Development (OECD) also forecasts that UK headline inflation will still be running at 4.7% at the end of 2023.
19: Bank of England - June MPC Minutes
Last week the Bank of England (BoE) raised interest rates to 1.25% and warned inflation will exceed 11% this coming autumn...
The UK’s central bank lifted its benchmark rate to 1.25%, from 1%, the fifth rise in as many meetings. Three policymakers wanted a bigger rise to 1.5% but were outvoted by the other six. Interestingly, it was all three of the external members of the board that voted for the higher rise...
Other central banks around the world are taking more forceful measures to combat soaring inflation and are introducing steeper interest rate hikes. The BoE has been accused of being too timid after only raising interest rates by a quarter of a point, despite the UK’s intensifying cost of living crisis and forecasted higher inflation.
Roger Bootle wrote in the Telegraph that the BoE's credibility is now severely compromised and that assessing the economy is like shooting at a constantly moving target... and the Bank keeps missing.
The Bank of England had also previously estimated that consumer price inflation would hit 10%– far over its 2% target. This new forecast of 11% shows that households face even more pain, with real wages already lagging inflation.
18: April GDP
The UK economy shrank in April for the second month running. GDP declined by 0.3%, adding to the 0.1% drop in March - with services, production, and construction all shrinking in April. The biggest fall was seen in production (0.6%), driven by a fall in manufacturing of 1% on the month, as businesses continue to report the impact of price increases and supply chain shortages.
The pound also fell against the dollar and UK stock markets tumbled this week after these gloomy April figures have shown the UK is edging closer to a recession.
Regular pay is falling at the fastest rate in more than a decade when taking into account rising prices, the Office for National Statistics has said. Between February and April, pay excluding bonuses was down 2.2% from a year earlier when adjusted for inflation.
Sam Beckett, head of economic statistics at the ONS, said a "high level of bonuses" was continuing to "cushion the effects of rising prices on total earnings for some workers". "But if you exclude bonuses, pay in real terms is falling at its fastest rate in over a decade..."
17: Profit Warnings
'On the Spot' this week is profit warnings. A profit warning is an official statement to the stock exchange from a publicly listed company that says that it will report full-year profits materially below management or market expectations.
The number of profit warnings issued by UK-listed companies in Q1 2022 was 72. This is a 44% jump from Q1 2021, with the troubled retail and consumer sectors amongst those worst hit by soaring inflation.
EY-Parthenon has published a Profit Warnings report, which found a record number of cost-driven warnings in Q1, as increased commodity and energy prices have hit listed companies’ bottom lines. EY found that over one-third of FTSE retailers (34%) have now issued a profit warning in the last 12 months, with supply chain disruption, staffing issues, and increased costs hitting the sector.
Adam and Nick pick out a handful of recent profit warnings and discuss how they relate to these ongoing wider issues in the economy. In a time of serious inflation and supply chain disruption, the big question is - what is the extent of the change in consumer spending, and how impactful will this be on the UK's economic recovery?
Businesses need to start thinking about how their operations and wider ecosystem will manage in ongoing turbulent times, and how they can adapt in response to long-term change.
UK unemployment has fallen to its lowest level in nearly 50 years. The ONS stated the unemployment rate at 3.7% in Q1 2022, which is the lowest level since 1974, with there being fewer people out of work than there are job openings for the first time on record. The ONS also said annual growth in regular weekly earnings rose to 4.2% in Q1 2022.
Unsurprisingly, this overall earnings growth masked big disparities between public and private sector wages. Nominal total pay rose 10.7% year on year in finance and business services, but just 1.4% in the public sector. The way we work is changing too, the number of part-time and self-employed in the workforce has risen, whilst the number of full-time employees has fallen.
No question, the labour market is in far better shape now than ministers or economists could have ever expected... However, unemployment is predicted to rise as a combination of falling living standards, higher taxes and rising interest rates continue to push the economy into recession.
15: GDP Figures & NIESR Economic Outlook
Overall GDP fell by 0.1% in March after no growth in February (revised down from 0.1% growth). Services fell by 0.2% was the main contributor to March’s fall in GDP, and manufacturing also fell in the month by 0.2%; however, these falls were partially offset by construction which grew by 1.7%. Monthly GDP is now 1.2% above its pre-pandemic level (February 2020).
The National Institute of Economic Social Research (NIESR) released a full UK economic outlook last week, forecasting GDP, inflation, incomes, and consumption over 2022 and the medium term. NIESR expects GDP to increase 3.5% in 2022 – declining in Q3 and Q4 – then increase by 0.8% in 2023 and 0.9% in 2024. The medium-term outlook for GDP growth is slow even by the standards of recent history, returning to 1.5% only in 2026. The combination of shocks – Brexit, Covid-19, and the recent shocks to energy prices, is set to leave the incomes of people in the UK permanently lower.
14: Bank of England - May MPC Minutes
The MPC is battling to steer the UK between runaway inflation and tipping the economy into recession.
The Bank of England just raised interest rates from 0.75% to 1% in an attempt to tackle soaring inflation which has been exacerbated by Russia’s war in Ukraine. With a new rise in home energy bills expected in October, it forecast inflation would creep above 10% this year, the highest level since 1982...
There had been speculation before the meeting that one or two MPC members might opt for a 0.5% increase. But the vote was in fact split 6:3 to raise the Bank Rate by 0.25% with three dissenters favouring a greater rise. The MPC doubled down on its March narrative, setting out the potential for a marked slowdown in activity over the coming months and dramatically cutting its growth forecasts, as the negative impacts from the higher cost of living weighs on household real income.
The question to ask yourself is, what do your risks look like with your customers and suppliers experiencing lower turnover and lower profit margins? Are you modelling and planning for that?..
13: Philip King - Former Small Business Commissioner
In a career spanning over 40 years, Philip King has held senior credit management roles across a wide array of sectors. More recently, he held the role of interim Small Business Commissioner between 2020-2021 and, prior to that, was Chief Executive of the Chartered Institute of Credit Management (CICM) for 14 years. Philip is also the architect of the Prompt Payment Code, which the CICM administered on behalf of the Department for Business, Energy and Industrial Strategy (BEIS).
The BEIS recently published its statutory review of the Reporting on Payment Practices and Performance Regulations 2017. Late payment remains a significant problem for small businesses across the UK. Fast payment allows businesses sufficient cash flow to invest in training and skills, equipment, innovation, and job creation.
Large UK companies and LLPs are required to report on their payment practices, policies, and performance every six months. The Regulations aim to increase transparency and public scrutiny of large businesses’ payment practices and to give small businesses better information so that they can make informed decisions about who to trade with, negotiate fairer terms, and challenge late payments.
Philip joins the podcast to discuss the review and share his thoughts as to whether the objectives have been achieved.
12: Company Insolvencies
The number of registered company insolvencies in March 2022 was 2,114. This is 34% higher than the number registered three years prior (pre-pandemic; 1,582 in March 2019). Overall, the first quarter of 2022 has seen 5,197 company insolvencies, the highest quarterly figure since Q3 2017. The bulk of these insolvencies were made up of Creditors’ Voluntary Liquidations (CVLs), with 1,844 CVLs in March 2022, more than twice the number of CVLs recorded in March 2021 and up by 62% on figures from March 2019.
This surge in CVLs is predictable considering the withdrawal of government support and the ending of restrictions on creditors and landlords taking action against businesses. Businesses with heavy debt burdens have seen their financial issues exaggerated by issues such as rising interest rates, growing energy costs, and the withdrawal of government financial support.
11: GDP + Inflation = Stagflation
The fear that the UK could be entering a new age of stagflation is becoming a racing certainty. Stagflation of course is a toxic combination of stagnant growth and rapidly rising prices - and runs the risk of intensifying the current squeeze on living standards.
Inflation in March climbed to 7%. The pickup in inflation is broad-based - unsurprisingly, Russia's invasion of Ukraine has intensified the problem by cranking up energy costs, but there is more to it than that. Food, eating out, clothing and furniture have all become more expensive in recent months. However, there is worse to come... when the April inflation figures are released next month they will include the 54% increase in the energy price cap – which alone will add about 1.8% to the annual inflation rate.
UK average earnings (minus bonuses) rose 4.1% compared to 2021, but actually dropped 1.3% when adjusted for inflation. This is the sharpest fall since 2013 according to the ONS. Jobs growth does show signs of slowing as employers added 35,000 to payrolls in March, below most forecasts and the lowest number since February 2021.
Analysts have warned that this latest jobs data and the slow growth of the UK economy in February make stagflation a very possible, grim reality, for the UK...
10: Insolvency Measures
Temporary insolvency measures that were put in place during the Covid-19 pandemic have been lifted today, as the remaining pandemic support schemes end.
Nick and Jo ask how this could all play out. In a world in economic turmoil and still recovering from the enormous impact of the covid pandemic, and now facing a different crisis in Ukraine... times have never been more uncertain.
The insolvency measures were introduced as part of the Corporate Insolvency and Governance Act 2020to limit the impact of Covid-19 related trading restrictions on businesses. Measures helped to protect firms from being wound up by creditors where businesses had suffered cash-flow problems because of reduced pandemic trading. Businesses operating in the retail and tourism sectors were particularly badly hit by the pandemic and relied heavily on government support. Additional measures had also been put in place in the commercial rental sector to protect tenants who were unable to meet rent payments.
Of course, these measures had helped keep the number of businesses folding during the height of lockdown restrictions at a minimum. But as the insolvency regime enters back into normal pre-pandemic operations, there's likely to be a significant increase in creditor activity. It is highly anticipated that creditors, who have not been able to seek to wind up insolvent companies in respect of most debts for approximately two years, will now seek to take action which may lead to a significant increase in petitions...
9: Spring Statement
Rishi Sunak delivered his Spring Statement earlier this week. The Chancellor pointed out the support he was giving to many financially troubled households, but the truth is that most people will suffer financial hardship in the coming years as the UK suffers the worst fall in living standards since records began.
The Chancellor has been heavily criticised from all sides for not doing more to help hard-pressed people across the UK facing rising energy bills, rising prices and rising taxes. Media reaction to Rishi Sunak’s Spring Statement has also been negative and some of the numbers around the cost-of-living crisis and the UK economy are even more worrying...
The Office for Budget Responsibility (OBR), which provides independent analysis of the UK’s public finances, forecasts a 3.8% rise in GDP in the 2022 calendar year, down from an earlier 6% prediction, and growth of just 1.8% next year as the post-Covid recovery slows down. The OBR also predicts that inflation, which has just hit a 30-year high of 6.2%, is likely to peak at a 40-year high of 8.7% in Q4 2022.
Alarming government borrowing figures have also been making waves. The Treasury will spend more servicing the UK's ballooning national debt in 2022 than it will on almost every other government department. In the next financial year, debt interest payments will amount to £83bn – the highest ever on record and almost four times the amount that was spent pre-pandemic.
8: Bank of England - Interest Rate & Inflation
The Bank of England raised interest rates from 0.5% to 0.75% last week, emphasising its determination to fight sky-high inflation, which is now expected to hit 8% by the end of June. The bank's interest rate hike is the third increase in a row in as many policy meetings. The bank's policymakers cited the rising cost of living and strong employment as the reasons for the latest rate rise.
The bank's Monetary Policy Committee (MPC) stated that Russia’s invasion of Ukraine would also “accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes”. The MPC said that economic growth in countries that are net energy importers, including the UK, was likely to slow and that inflation could climb even higher in the autumn when energy prices are set to rise again.
Also covered in the episode are recent insolvency statistics, and some changes we are beginning to see in the number of company administrations.
7: Ukraine Crisis & Economic Crime Bill
The main topic of conversation this week continues to be the Ukraine crisis and its rippling effects on the UK and beyond. Fresh sanctions on Russian oligarchs are being imposed daily with Chelsea FC owner, Roman Abramovich, the latest to be sanctioned by the UK government as part of its response to Russia's invasion of Ukraine.
Another key talking point is the Economic Crime (Transparency and Enforcement) Bill that was discussed in the House of Lords yesterday. The Bill seeks to establish a register of overseas entities and their beneficial owners, amend financial sanctions law and reform the UK’s Unexplained Wealth Order (UWO) to empower criminal investigators.
A long-awaited white paper was published on corporate transparency and register reform recently, which sets out plans to enhance the role of Companies House and to increase the transparency of UK corporate entities. We have been expecting this announcement for some time and these reforms have been accelerated in response to the current crisis in Ukraine.
The Centre for Economics and Business Research (CEBR) has also published a warning about the impact of the crisis. They estimate that GDP growth in the UK will more than half from the previous forecast of 4.2%, to 1.9%. Inflation is forecast to hit 8.7% in Q2 2022, and disposable income is forecast to fall 4.8% - which is the largest drop in living standards since records began. Oil and gas charges, rocketing again because of the conflict, will drive prices up as food transport and production costs also escalate - the CEBR expects the combined effects will shave £2,553 off household budgets in 2022...
6: Economic Impact of Ukraine Crisis
Russia's invasion of Ukraine is a conflict that could develop into Europe’s biggest since 1945 and has destroyed hopes of a strong global economic recovery from coronavirus. The immediate global repercussions of the war will be higher inflation, lower growth, and some disruption to financial markets as stronger sanctions take hold. The longer-term fallout will be a further debilitation of global supply chains and integrated financial markets.
Jo and Nick discuss the ripple effects of the war and its impact on the aviation, energy, motor, and food sectors, amongst others. Russia’s military action in Ukraine will of course have implications for domestic consumers also. The most likely economic impact, at least initially, will come through higher energy prices - felt in petrol prices and then potentially energy bills (for businesses, as well as households). Food prices may also rise, Russia and Ukraine are important producers of wheat, accounting for 30% of global exports. The price of wheat alone has risen over 50% in the past month.
Ukraine also supplies 25% of the world’s neon gas, which is essential to the production of semi-conductor chips, which were already in high demand before war broke out.
Whilst the ultimate outcome of the war is unknown, and perhaps always will be, it has never been more critical to manage supply chains and mitigate your exposure to financial risk.
5: Greg Connell - Founder of InfolinkGazette
On the Spot this week is Greg Connell, founder of InfolinkGazette - publisher of comprehensive insolvency information, including details of Unpaid and Unsecured Creditors from UK company failures, and deliverer of unique business information.
Greg talks about the worrying trend he is beginning to see from the High Court; the number of winding-up petitions that are being filed is increasing rapidly. These petitions are filed one month before they are published in the gazette and are a leading indicator of compulsory liquidations...
In January 2022 there were 1,358 Creditors’ Voluntary Liquidations (CVLs), more than double the number we saw in January 2021.
Jo and Nick also examine the impact of ending various covid government support measures on businesses, and what changes we may see going into 2022. In particular, there is concern around what might happen once commercial landlords are able to enforce debts again from March 25th.
4: Interest Rates
Headline news last week was that the Bank of England (BoE) increased the base interest rate to 0.5%, up from 0.25% - the first back-to-back increase since 2004.
The cost of borrowing was doubled and comes as rising food and energy prices see inflation currently riding at a 30-year high of 5.4%. The BoE has warned that the cost of living crisis will hit millions of households across the UK this year, with inflation expected to further spike to 7.25% in April (well above its 2% target).
Post-tax disposable household income could fall by 2% this year, equating to the worst fall in living standards since records began. 9% of UK homeowners have mortgages that track the bank's basic rate. With the increases forecasted this year, around £26 a month will be added to repayments for these homeowners as the cost of living bites, trade association UK Finance calculates.
Ultimately, higher interest rates make borrowing more expensive. Credit cards, personal loans, and car loans are all likely to see a rise in interest rates as they are linked to the underlying base rate.
The BoE's Monetary Policy Committee also believes that the UK GDP growth forecast for 2022 should be cut from 5% to 3.75%. Looking further ahead, this growth rate is predicted to slow to 1.25% in 2023, and even more to 1% in 2024 - putting the UK more or less into standstill territory. Inflation wouldn't need to be nearly as high as it is now for that to potentially cause stagflation...
3: Companies House Reform
The UK government is failing to tackle economic crime. Money laundering and other forms of financial crime are made easy by the UK’s relatively lax approach to checking companies. Companies House infamously acknowledges at the top of its website that it “does not verify the accuracy of the information filed”...
Jo and Nick shine the light on Companies House and discuss why major reform is needed. The failures in tackling fraud have been brought into focus by the dramatic resignation of Lord Agnew in the House of Lords last week. A key piece of legislation, the economic crime bill, had been rejected for consideration during the next parliamentary year which prompted the resignation. The bill was expected to bring forward measures, among others, to improve almost non-existent oversight of the UK’s business register, Companies House and to increase business confidence in the UK.
Also covered in the episode are insolvency statistics for 2021. A record number of companies in England and Wales agreed with their creditors to cease trading during the final quarter of 2021, after the government tapered back its pandemic-support measures for businesses. Company insolvencies for England and Wales jumped up 11.2% to 14,048 from the previous year. The number of CVLs in the fourth quarter reached the highest since records began in 1960.
Inflation. Is it transitory? Or, are we inching ever nearer to stagflation?
This week, Jo and Nick put inflation 'On the Spot'. It's been the word on everybody's lips for some time, but as we begin 2022 and the numbers are running ever hotter we need to dig deeper and understand the bigger picture...
The cost of living is already at its highest rate in over a decade, with UK CPI hitting 5.1% in November 2021, according to the Office for National Statistics. This is up from 4.2% in October 2021. A key driver in the rise in energy costs, which have been climbing steeply, along with ongoing supply chain problems at a time of increased demand for energy and products as the economy tries to rebuild.
December figures have not yet been released, however, they are widely expected to be higher again as they were in the Eurozone where inflation hit a record high of 5%, and the US, which CPI reached a 40 year high of 7%.
1: Peter Smith - Procurement & Supply Industry Leader
On the spot this week is Peter Smith, ex-president of CIPS and former procurement director at Dun & Bradstreet. Peter has extensive experience in procurement and credit management, having been involved in the industry for most of his working life. Peter is now an author and his latest book, Procurement with Purpose, explores how organisations can change the way they spend money to protect the planet and its people.
The beginning of 2022 is a challenging time for procurement teams right now. Inflation is a huge worry, supply chain issues rage on and geopolitical risk factors are becoming ever greater. In this episode, Peter explains how he would mitigate risk if he was still working in procurement and what he believes those risks are. He also highlights why procurement is the driving force behind the commercial capability of a company and why company-wide buy-in is the key to procurement success.
76: Year in review & looking ahead to 2022
The final episode of the year is here! Nick and Jo re-cap what has been a challenging year for all. They look back on the success of the furlough scheme and, why the surprisingly low unemployment rate is a big positive to carry forward. There have been plenty of negatives along the way too and many businesses have suffered as a result. 2022 is just around the corner, inflation is high and interest rates are undoubtedly about to increase. The reality is businesses are now going to have to manage risk without the cushion of government support schemes...
75: Employment Figures & Inflation Update
The UK unemployment rate dropped to 4.3% for the past quarter, as businesses continue to recruit after the removal of Covid restrictions, this rate is 0.5 percentage points lower than the previous quarter. However, vacancies at UK companies hit a record level in August to October, rising to 1.17m - that’s an increase of 388,000 from the pre-pandemic January to March 2020 level, with 15 of the UK 18 industry sectors showing record highs. The ONS also estimates that underlying regular pay growth is around 3.4%, but says that this should be interpreted with caution given the uncertainty on inflation. Inflation continues to be the word on everyone's lips - the year on year increase on gas is 28%, electricity 19% and fuel 22%. The HMRC faces a significant challenge in clearing the backlog of debt owed, with some £42bn still owed to HMRC in September 2021 (up £16bn from January 2020).
74: Furlough Fraud & Commercial Rents Code of Practice
Commercial landlords are being encouraged to waive 'some or all' rent arrears where possible where tenants are unable to pay in full and were forced to close in response to the Covid-19 pandemic, under a new code of practice published by the UK government. The code sets out to help commercial landlords and their tenants resolve any remaining commercial rent disputes which arose during periods of forced closures during the pandemic. Today’s Q3 GDP report shows that the UK economy is lagging behind its G7 rivals in recovering from the pandemic. On a quarterly basis, the UK economy is still 2.1% below its pre-pandemic level in Q4 2019 after growth slowed to 1.3% in the period July-September. Hundreds of companies set up after the government’s furlough scheme was established have fraudulently claimed millions from the taxpayer. The use of these companies to claim emergency pandemic funds will be scrutinised by the HMRC who seek to recover £1 billion in fraudulent or mistaken claims.
73: Interest Rates
Last week many were left scratching their head when the Bank of England announced they were not going to raise interest rates even though inflation is forecasted at 5% next year. Leading up to the announcement there were plenty of signals coming from various policymakers that we would see a rise from the current lowest-ever base rate of 0.1 percent to 0.25 percent, however, we still saw no change. Nick and Jo look at the surprising announcement in more detail and look back to a time in the 1970s when the U.S. economy was truly threatened by inflation and Paul Volcker, former Chair of the Federal Reserve, had to take extraordinary measures to defeat it.
72: The Budget
Last week the chancellor, Rishi Sunak, unveiled his budget. He says his budget delivers a brighter economy for the UK: stronger growth, public finances, and employment. The chancellor says he will give people the support they need to cope with the cost of living. Inflationary pressures are adversely affecting the UK economy, with the Office for Budget Responsibility (OBR) forecasting that inflation will be above 4% next year. Nick and Jo review the budget and address the key takeaways. They also look ahead to the Bank of England's Monetary Policy Committee’s (MPC) announcement this coming Thursday on interest rates.
71: Interest. Inflation. Insolvency
There are various signals coming from the Bank of England’s Monetary Policy Committee (MPC), which has fired up talk that a rise in UK base interest rates could come as early as next month. The MPC is due to announce its next decision on rates on November 4th. The Bank of England's new chief economist, Huw Pill, has warned that UK inflation is likely to hit or surpass 5% by early next year, with rises in transport costs being a key upward driver. Insolvency numbers continue to rise and the number of businesses choosing to go into liquidation has now reached the highest level since the onset of the Covid crisis. Nick and Jo pick apart these heavy topics and help you make sense of the numbers.
70: August GDP & Insolvency Predictions
The UK economy picked up in August as GDP grew 0.4%. This latest snapshot showed activity in the accommodation and food service sectors, as well as arts and entertainment, contributed the most to growth. Official data published on Tuesday showed that the UK unemployment rate edged down 0.1% to 4.5% in the three months to August - a welcome figure and one that is lower than analysts had predicted. Credit insurers Atradius and Euler Hermes have been looking ahead and announced their predictions for UK insolvencies. Both are predicting that 2022 will see a rise in the number of insolvencies by around 32% (compared to pre-pandemic). There are fears that numbers could be even higher if the vast number of zombie companies operating in the UK begin to fail quicker than anticipated.
69: Cost of Living & Price Hikes
The cost of living has been dominating the headlines this week as the £20 benefits uplift, that was introduced during the pandemic, was withdrawn. Many people are now facing serious financial hardship and with inflation worries becoming ever stronger the situation is of great concern. Consumer Price Index (CPI) inflation is now expected to hit 6%, and Retail Price Index (RPI) to hit 7%. Energy bills could rise by 30% next year as the energy cap will be raised and a council tax rise of at least 3.6% will be needed annually to keep services at pre-pandemic levels. There are plans to raise the minimum wage to combat these rises but raised by how much remains unknown. Also covered is the construction industry - the pace of growth slowed last month and could the industry be the canary in a coal mine for the wider economy?