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.
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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.
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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.
Parts of our financial system haven’t changed; from the good ‘ol days of the local bank manager, through the dark days of the five horsemen of the apocalypse and into the IT platform future, they’ve just got a whole lot more value attached to them for anyone who wants to stay ahead of times that are-a- changing.
I can’t promise that, by understanding how the cash flows: the differing forms, uses and structures, seat belts would be needed for meteoric rises but I will say that small steps moving further away from running on empty is, when (as someone noted) ‘this is all temporary’ (would that be the same person who said ‘who knows what tomorrow will bring’?), a way to get an extra gear …. which, as far as I can tell, is better than being stuck in first gear when you’ve an irritated Llama closing in.
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02 06 2014
Data from ONS show that illegal drugs and prostitution contribute around £10bn a year to the British economy. For the first time statisticians are measuring the value of the drug-dealing and sex work – apparently about “the same contribution as farming – and only slightly less than book and newspaper publishers added together” or accommodation services which included hotels, bed and breakfast and caravan parks. The figures will be included in the category of household spending on “miscellaneous goods and services alongside life insurance, personal care products and post office charges”. The smuggling of alcohol and tobacco are already included in GDP and make up some £300m.
A report by HSBC has revealed Hull offers the fifth-best yields in the country for landlords, generating 7.47 per cent of a house’s value for its owner every year, with average value in the city of £68,243 and annual rent of £5,100. With yields of 7.82% and rental accommodation making up almost a quarter of total housing stock, Southampton was placed the best for BTL where an average rent is £901 a month. However, Siemans’ are set to start a £310m turbine site in Hull later this year and 2017 it will become a culture capital which is likely to promote price rises, however, there could be an effect on rent yields which, similarly for Blackpool, Manchester and Nottingham, are driven by cheaper stock. The other locations identified by the report for fastest growing yields were Reading, Brighton and Hove, Southampton, Cheltenham, Bristol, Bournemouth, Manchester, Oxford, Eastbourne, Hammersmith and Fulham. The reports best hotspots were Southampton, Manchester, Nottingham, Blackpool, Hull, Coventry, Oxford, Portsmouth, Liverpool and Cambridge.
Commissioned by the Treasury, the telephone survey of 5,000 businesses has cumulated in BBI (Business Banking Insight) , a data collecting website about individual banks service provision. Available for SME’s to rate their bank and who according to the survey, were 40% dissatisfied with the service offered by their account holder (of employers with nine or fewer people) and 35% dissatisfied (of employers with ten to two hundred and forty nine employees).
Property website Zoopla announced a stock market flotation based in London, and launched only six years ago, it’s seeking a valuation of about £1bn and is looking to sell at least a quarter of the business.
Living up to their tagline (Here For You) RBS seem to be very available for some recent news articles. In no particular order: Mobile banking services for the their Group has been hit with another IT glitch (Lloyds, Halifax and Bank of Scotland were also affected), Lloyds Banking Group is joining a lawsuit to sue RBS over a rights issue, filing claims for over 400 million pounds and, in the event of independence, there is a call to break up RBS, and unpick it from Lloyds Banking Group, and Clydesdale Bank for National Australia Bank Group and ‘for just twenty pounds a month’ businesses can receive a variety of cloud-based accounts services.
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16 05 2014
He’d said, at the World Economic Forum, “Once goal setting is done, the Central Bank needs to be more determined toward output and there must a better understanding with set goals and the tolerance level of banking operations” and being in a bad - but improving – place is, according to Mark Carney, Governor of the Bank of England, a good problem… but a problem.
Using, instead of the usual nautical associations for this island nation, Carney delivered a speech using the world cup as an analogy: there was no ‘even keel’, instead the agenda was ‘goal setting’.
Falling unemployment has reached a five year low, but The Bank’s decision about when to raise interest rates from 0.5% will continue to depend on the amount of ‘spare capacity’. The ‘slack’; those companies not running to full capacity, or people not working as much as they’d like, being the measurement.
So, who’s pitching the goals?
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04 04 2014
As from 1 April 2014 the Competition Commission is being taken over by the Competition and Markets Authority (CMA) and will assume the consumer functions of the Office of Fair Trading OFT concurrently with Financial Conduct Authority (FCA) who will hold the law powers in relation to financial sector activities for over 50,000 applicable consumer credit regulation firms.
As from 26 April 2014 new lending rules will be applied as a framework for lending when the Mortgage Market Review (MMR) comes into full effect. For all types of regulated mortgage contracts, lenders will be looking for the ability of all borrowers to afford the loan at both the current rate and, additionally, if there were rate rises. It applies to staying with the same lender; repayment methods, further advances, part or full redemptions and equity transfer, as well as considering a new lender and non-bank mortgage lenders subject to risk-based capital requirements and liquidity risk management controls. Using detailed scrutiny, this advice driven model in essence focuses on responsible lending and affordability assessments.
‘The more organised you are and the quicker you can get to the point of exchanging contracts, the less time there is for movement in the market.’ Although we haven’t seen it recently, apparently gazumping is on the rise.
And …. crazy prices continue….
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03 03 2014
The banking industry has seen a rise in consumer confidence for two years in a row, according to a new survey of 32,000 banking customers in 43 countries. The study around the world showed confidence increasing most in India, followed by Saudi Arabia, with confidence falling the most in Ireland and Spain.The survey showed 60% of respondents aren’t planning to close or move their accounts, which, according to Ernst & Young highlights that this isn’t necessarily because they are confident that they are with the right provider, with some respondents stating they a change would be too difficult or time consuming.
“Bank customers are not being actively retained; they simply remain with their current provider through inertia and are therefore vulnerable to competitors“.
According to another global study the Arts, Entertainment and Hobbies market sector was 60% more competitive January 2014 compared to January 2013 and Financial Services 60% more so, whilst Sports & Recreation was 121% less competitive in January 2014 compared to 2013 in relation to digital advertising
The three months to February saw a highest level since 1998, in the Confederation of British Industry (CBI) quarterly Service Sector Survey. Optimism indices for consumer services (including hotels, bars, restaurants and leisure) rose to their highest level amongst 139 companies and at the quickest pace since 2005.
The ONS has confirmed the UK economy grew by 0.7% in the Quarter with business investment rising by 2.4% from the previous three-month period and rose 8.5% from a year earlier.
The BBA (British Bankers Association) has said that mortgage lending was 38% higher in January than a year ago and ‘continues to rise compared to a year earlier’. It is widely expected that the Bank of England will raise interest rates by the end of next year, with an inevitable knock-on effect on mortgage rates.
Finally, not certain if this is a record or not but Royal Bank of Scotland has lost all the money invested in it by the taxpayer six years ago with total losses since its bailout now drawn level with the £46bn put in with 81% stake, in 2008 and The Co-op Group’s losses for 2013 are expected to be greater than £2bn, by far the worst in its history.
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15 01 2014
With inflation falling to the Bank of England’s 2% target for the first time in four years and numbers from Bank of England Credit Conditions Survey (2013 Q4) continuing an upward trend, the notion of ‘positive’ outlook has (for some) been reinforced.
Could it be that Default Rates on lending to small businesses being reported as ‘fallen significantly in Q4’, with medium-sized companies unchanged and large PNFC’s falling over the quarter, was due to re-structuring of existing facilities being part of the reclassification for 2012? Alongside a statement which shows spreads on corporate lending falling in Q4, with ‘significant reductions’ for medium-sized companies and large PNFCs, and a slight reduction for small businesses’ it’s worthy to question an attribution to re-structures into the figures behind the numbers.
Depending on the questions asked and the answers given some results are ‘not directly comparable’ therefore perhaps some statements are too narrow? Maybe an insightful survey is one that focuses on the survey participants’ business attitude, their plans and strategy in achieving that objective. Would that offer a stronger perspective and wider field of vision into the UK economy or would it tell us what’s happening in business rather than what’s happened?
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