15 08 2014
For they surely will….
Inflation Report Recap.
August 2013 – Forward guidance would use several indicators, mainly based upon unemployment, labour market, working hours and surveys of ‘spare capacity’ in companies. The degree of spare capacity would reflect upon any increase in Bank Rate.
18 additional indicators were added for degrees of space to the projections.
The last report (May 2014), a goal setting football analogy, indicated no early rises and there was a general consciousness towards it being after the General Election (2015), when rises would be up to 3% between 2015 and 2017.
The latest Report states that it expects Interest Rates to rise in line with market expectations, with an emphasis on gradual rate rises. There are suggestions of a Rate Rise around the 0.75% mark during the 4th quarter, followed by increases to 1% by early 2015, with slower increments to reach about 2.5% -3% by 2017 (Mark Carney’s speech at the Mansion House indicated there might be necessity for an earlier rise).
Supporting indicators of an Inflation Rate jump in June, from 1.5% to 1.9% (the target is 2%), Press giving out business optimism as being high for economic growth, figures from the ONS showing growth, unemployment figures showing falls (although wages are slowing) blended with opaque measurements, leave the question hanging, “When will Rates start to rise?”
Anyone selling crystal balls might do well over the next few months.
Image and Article credits: Copyright SUF © 2014
Know Anywhere I Can Get It Cheaper?
Hello – My name is Mike and I’m an addict.
I realised I had an addiction when I’d reached for something stronger than face-palm.
And as it seems, rarely does a week go by when I remain ‘sober’, and my head doesn’t take and involuntary rest on the desk because someone always swings by to tell me they’ve done the maths, know the numbers and all they now need to know is…. ‘can it be done cheaper?’
That’s my relapse cue for some surface impact, now being achieved through the namely Headdesk (known to some as BHOD – Bang Head On Desk), an extreme form, which for those who partake be warned - taken too swiftly can almost knock you out.
The root cause for my habit comes from back in the day and some novice landlords: there is no rationale where there is no experience, therefore I shouldn’t have allowed this to be be sufficient reason to start using facepalm and, had I managed to find some form of alert to those coming to me with bad habits, I might not have compromised myself by moving on to double facepalm.
I admit that my drug of choice is a crutch. It gets me through when I’m dealing with those who don’t want me sharing my impartial knowledge, offering honest feedback or benefit from my working world’s experience. But, although it’s a dependency spurred by people following their own bad habits, doing things they might not want to do but not knowing how (or wanting) to let go, it’s not a vicious habit and only happens when I witness opportunity, strategy and long term thinking being sidelined. For example, when I’m presented with a cost-saving notion because it’s a snapshot to a quick fix or deemed the cheapest option, I take my own quick fix; which doesn’t impair my work performance, and hasn’t caused any short term damage (not certain about the long term!). Except that, now, because I’ve turned to Headdesk, with its giveaway thump, I realise my downfall might be around the corner, “Hey Mike, is that the sound of you wracking your brain because you didn’t know this already?”
When we want to find the cheapest option and the easiest route, our expectations deflect away from wearisome bureaucracy and finding gateways, it appears easier to spend time with a comparison site. And, when I’m asked to confirm if something can or cannot be done cheaper, there is a bonus for these prospectors because I’m happy to confirm to them the comparison site is indeed a straightforward way of getting information. Comparatively, before any hard surfaces meet my forehead, I’d be focusing on features that mitigate costly blunders, the things which aren’t found on comparison sites and the things which by their very nature aren’t straightforward. When I notice an equation is missing some numbers which can make a difference in yields, it’s not always received as helpful information: the response lever releases an exit where sheep are separated from goats.
“Those who mind don’t matter, and those who matter don’t mind” (Seuss)
These are confusing times, who to trust and who not to trust is difficult enough without involving one of the most emotive commodities: Money.
That’s the reason you’ll sometimes find me with my head deeply embedded in my desk!
Image credits: Article credit: Copyright SUF © 2014
01 08 2014
Difficult to think about December in August however, Saturday 6 December is Small Business Saturday, the celebration day of ‘shop local’ and use independent-owned businesses, an initiative that promotes at all levels the support of small firms and have started their 100 countdown.
Santander apparently had an issue with the ‘moral problem’ of the aptly named Circus Uncertainty (you couldn’t make this stuff up!) when they wanted to set up a business account. It seems that burlesque-style outfits worn by the showgirls of the 40 strong troupe might have made the bosses backtrack (wonder if that was at risk assessment?), that the bank didn’t want to be associated with. But ‘committed to supporting the local business community’ (and some press coverage) the bank has now re-opened discussion with the circus owner.
Money’s still too tight to mention according to the BoE, who began collecting data on loans to non-financial small businesses in 2011. Consequently, there is to be a wide-ranging regulatory probe (their words not ours) into the UK banking sector that will focus on personal and business accounts. Still with the BoE, new plans have been revealed for Bankers who break rules (following alleged Libor rate-fixing) to face potential bonus clawback, and the prospect of custodial sentencing as part of risk management and regulation. The next MPC meeting to August 7 will see the next interest rate decision. New Deputy Governor Nemet Shafik, who will join the bank on 1 August, had said the bank was likely to revise down its estimate that spare capacity in the UK economy is equivalent to 1% to 1.5% of GDP in its August update – a sign that the time for a rate rise is moving closer.
The Tax Office is to go on strike because of backlogs, delays and apparently private debt collectors. Strikes will be spread across the country on different days. Plans are also being introduced by HMRC for new Direct Debit recovery powers under which they will be able to deduct tax owed directly from the accounts of debtors (providing £5,000 remains across all accounts including ISA’s).
HSBC is closing accounts to some Muslim organisations with a reasoning given of the service provided would be outside the bank’s ‘risk appetite’. The bank has said that it was ‘applying a programme of strategic assessment to all of its businesses’, following a fine over poor money-laundering controls.
With 25% of small businesses still not online, the UK’s largest domain registrar is on campervan tour around the UK to highlight the importance of having a digital presence. Starting in July (Newcastle) and finishing in London (12 August), they’ll apparently be demystifying the online world.
Image and Article credit: Copyright SUF © 2014
21 07 2014
There’s a lot of noise surrounding a proposed eighteen month enquiry, (similar to that made into the energy industry), towards the UK’s four largest banking groups known as the Big Four (Barclays, HSBC, Lloyds and RBS). Apparently holding 77% of customer current accounts between them, they also hold the potential to face a competition investigation (followed by report and recommendations with reforms cited ranging from free cash machines to a break-up of the banks).
It seems the love of a good story requires a big finale.
Will the hallmarks of the major banks be proven to be barriers to customers? Is it that customers ‘vote’ by where their accounts are held? Could ‘compliance requirements’ or repetitive patterns illustrate obvious reason? Has public engagement met a point of no return? Would the loss of free banking ignite a reaction? Might a gaping hole be found, or announcement (accompanied by some chin-stroking and a dramatic effect – Dah-Dah- Dahhh!!! sound) reveal, ‘public perception has replaced missing reality’.
The market share report would be undertaken by The Competition and Markets Authority, with consequential recommendations relating to any surrounding confusion and cross-subsidies for personal and some small business lending accounts.
It will be interesting to see whether challenger banks (with current rules meaning different reserves held) would be included, or how different ‘built-in’ biases, or that some have narrow fields of vision (only considering the immediate) while others have a reluctance to change built on routine, would be considered.
So it’s hardly a spoiler to say, if there is another investigation in bank practices…. it’s unlikely to be a breath-holding finale with special effects…. and more of a soap opera with repeat lines.
Image and Article credit: Copyright SUF © 2014
Stuck in a Rut?
In the intervening years since I last viewed an end of year school report, things may have changed. Rarely containing a personal comment, they had to be scrutinised for hidden meanings to talk over on parent’s evening. Promises of trying harder were made for after the summer break… the fresh start of un-graffiti-riddled folders and un-bitten pen sets.
Similar to an end of year school report, commercial lending annual client reviews have content which rarely deviates too far from standard statements. Comment of the, could do better or has the ability but needs to focus ilk is made to those whose promises go unfulfilled, with the more usual fare being about fiscal sustainability and continued improvements, steady and measurable progress, operational effectiveness and manageable growth.
Capital, cash flow, credit, reserves, liquidity, surpluses and reorganisation are boring (for the most of us). It’s only when I get my teeth into a project that the structure of those elements take on a different shape, when their life-cycle comes alive, then I get interested. But, for the smaller business owner, when there’s little or no co-operation from the channels or instruments used for these elements, it can be very frustrating – and easy to see why focus disappears. There’s a trajectory to the great unknown which is daunting enough without increasingly hearing the latest in vogue F-word lavishly bandied about.
Distracted focus from a commercial liability can undermine its strength when the base-lines used to measure creditworthiness or business performance keep shifting.
Aversion, happening further up the food chain of global markets, acts to exacerbate the problem of financing for the smaller business owner. Limitations are trickling down in the real economy, at the same time as costs rising; disconcerting the independent business owner and disorienting general financial conditions. Even with positives to a business investment, even for the risk-averse and even in an F-for-Frugal environment, sustaining profitability can suffer from caution as businesses are being forced to operate differently.
Lending banks won’t deviate from their deposit base as they shore up their capital base. The UK inflationary pressures are low, with a likelihood of interest rate increases looming ever nearer.
Banks, and other lending sources, are businesses – hugely complex businesses. They have a business plan or operating strategy (that includes a marketing presence). They’re run with strategic focus, which has strategic objectives and a perception of risk. They have lending profiles and use cost control. Targets seek returns and are derived from KPI’s (Key Performance Indicators), monitored by KRI’s (Key Risk Indicators) for losses (immediately and effectively). They often have a mix of funds and borrowing, debt and equity to operate with. They use monitoring systems for their operating expenses and price margins. Sometimes mid-term reviews are implemented for corrective measures to their targets. They look to minimising their cost of capital and balance their own capital, borrowed funds or reserves and their internal management systems expect customers to operate similarly.
What happens when a businesses system doesn’t have those elements available or implemented?
The only difference between a Rut and a Grave…. is the depth.
Image credits: Sonny Abesamis and SUF Article credit: Copyright SUF © 2014
04 07 2014
The FPC (Financial Policy Committee) has proposed new rules for mortgage lenders which caps loan-to-income ratios and includes interest rate stress tests. Lenders will not be able to have more than 15% of new mortgages at loan-to-income above 4.5 times and it applies to all Help-to-Buy loans. Coming into force 1 October, the test ruling applies to the first 5 years of the loan and assesses the borrower being able to afford repayments, if their interest rate rose by 3% above the rate at origination. The stress tests are generally in line with those already implemented by major lenders as part of their affordability calculator and are part of policy measures being taken to limit the risk of house prices being detached from earnings. The restrictions cover owner-occupier loans however the FPC minutes state ‘The FPC considered the need to monitor mortgage lending activity beyond the scope of the recommendation…This included close monitoring of the buy-to-let market….’
Payday lenders and other firms offering high cost, short-term credit will face new rules applied to rollovers, continuous payment authorities and risk warnings, from July 1. Such high-cost short-term lenders are restricted to two unsuccessful attempts to use CPA (Continuous Payment Authority) to take a repayment and can’t use CPA for part-payment. Similar rules are applied to loans repaid in instalments.
UK house prices increased by 1% in June (11.8% higher than June 2013), according to Nationwide Building Society; all regions showed annual price gains in the second quarter of the year. Their current figures state the average price for a home is £188,903, with price increases 14 months in a row.
According to a survey of 1,000 NLA members the average void period experienced by UK landlords has continued to fall and is down to 2.7 weeks, bringing it to 2012 levels. High tenant demand is credited to keeping the time a rental property is empty between tenancies. The survey was to find the top factors that landlords consider when getting ready to make a BTL purchase. Quelle Suprise! Landlords prefer to invest in areas where they have local knowledge and understanding of market trends. Other factors were cited as strength of tenant demand in the chosen area, local rent levels, capital growth prospects, local transport connections and almost ¾ of the participants said they’d be looking near their own home.
The British Retail Consortium has published recommendations for the reform of business rates. Calculated on the rental value of properties in 2008 (before the recession) it is therefore thought not fair to businesses competing against online-only businesses. The recommendations include reducing the total amount of business rates and that they are shared more fairly between different industries, including incentives for energy efficiency.
The Market Purchasing Managers’ Index (PMI) showed a score of 57.5, up from 57.0 in May. Any figure above 50 indicates growth in the industry and the UK manufacturing sector has grown at its fastest pace for 7 months (June) with job creation growing at its fastest for 3 years.
That’s the serious bit….. now, on a more flippant note…..
A 55 year old Entrepreneur / Consultant has recently joined LinkedIn with an apparently list of more than 150 careers. The former astronaut and fashion designer always has a ‘smartphone, tablet and briefcase by her side’; she is apparently a ‘smart, stylish career woman’ whose business is named Dream Incubator. And (for those who like management speak) her tagline ‘If you can dream it, you can be it!’ might inspire a LinkedIn invitation…… to the plastic lady known as Barbie ….. she might be dressed, but is she ready to work?
Image and Article credit: Copyright SUF © 2014
13 06 2014
We have a digital world, with a digital economy and it’s as flummoxing as it is fascinating.
Within its lexicon are words which sound as though they belong on the Starship Enterprise: firewalls, encryption and the like, I had very worthwhile day away from the office amongst a world of data protection.
There’s a lot of white noise (and likely even more data), data breaching, data loss and of course a digital currency floating around. There are huge numbers associated (Ebay instructing 200m users to change their passwords) and changes to regulation (EU regulations) is on the way. When it’s possible to ‘lose’ a plane (MH370 ), some data appears useless. When it’s possible to pinpoint a place in an ocean that a lost plane might be found, some of it is of great value.
As an observation, for those of us not directly involved, it’s a challenge to understand how most data is gleaned and applied to become relevant information….. and can seem like it’s from another planet…. a bit like finance.
Image and Article credit: Copyright SUF © 2014
Money Spiced with Llama Spit
Some fifty four pages of analysis, trends and developments across the economy are patiently explained and in a matter of fact manner, and inflation projections are translated by a patient and informative Agent…. yet, even with an A4 glossary, I left the meeting with my brain shrieking the same way it does reading isolated EBIDA figures.
I’d been to the Bank of England quarterly inflation report meeting where coloured diagrams and graphs that appear to go all over the place, at one brief point illustrating seismic waves for an earthquake potential, are shown.
There are no instructions for reading Inflation Reports (or EBIDA figures) and no warnings stating `This is an educated appraisal which contains potentially nuclear information, therefore as you may not be fully informed, you may experience a sense of foreboding’.
As financial needs for a business owner are as different as a full economic analyses and ‘our survey said’, or a single EBIDA figure heading up a report and the same figure coming after the pluses and minuses, although full analysis or single figure are created to give some clarity, without an accompanying mix of information that can set the full picture, and stop me feeling as though I’ve just swallowed something that tastes like lavatory cleaner spiced with Llama spit, they may as well be written in hieroglyphics.
As well as being at the heart of my business, the smaller employer is close to my heart (my grandparents and parents owned and were involved in operating smaller businesses, my extended family have local businesses or service-based businesses) and the non-corporate business is incredibly important to our economy. I don’t understand everything about the economy but….. Brace yourself if you’re of a nervous disposition about your business…. I’ll tell you what I do know…. and I’ll try not to be too graphic.
The day after the meeting when I got to speak with a mix of business owners and lenders’ people and I was unsettled, in a full-face Llama cleansing way. There was no mention of mention of the economy (…and some weren’t aware of EBIDA figures, single or full).
With that purple line, on the current B of E probability of inflation above target chart, being almost as straight as a straight road named Stagnation, unless those earthquake potentials are realised, interest rates are in a good place for businesses to set their stalls for their futures. And, because some lenders traditionally set their stalls as a ‘one size fits all’, being aware of EBIDA type metrics is an essential for the business that wants to successfully negotiate a way through finance and funding options for their future.
I’ve likely told you about the same as you’d tell me: there’s no explicit detail about what’s going to happen in the economy and as boring as it is for a cow to chew its cud, financial forecasting is a necessity.