On the Spot

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...

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.

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. 

'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.

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...

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.

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..."

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.

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.

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.

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. 

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...

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.

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.

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...

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%.

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.

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... 

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).

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.

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. 

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.

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. 

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.

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?