Categories
Banks, Lenders & Investors Business Development & Marketing Cash Flow & Forecasting Finance General

Key Indicator – the state of UK business activity

UK business activityUK business activity is either in a woeful state, or slowly picking up speed following December’s general election, depending on who you are listening to.
Given the dire insolvency figures for 2019, which I covered in Tuesday’s blog, there is clearly plenty wrong in specific sectors of the economy.
The construction industry, High Street retail and the accommodation and food services were the worst-affected last year but it would be foolish to pretend that any business, from SME to large corporations had an easy time given the global economic slowdown and, more recently, figures revealing that the EU economy is near-stagnant.
Nevertheless, now that the withdrawal of the UK from the EU has passed its first hurdle and that the government has a clear mandate with a huge majority to implement its decisions for the next five years, there are signs of optimism.
The first Lloyds Bank Commercial Banking Business Barometer in 2020 showed a 13-point increase in business confidence, taking it up to 23% in January, the highest it has been for 14 months. The Lloyds barometer calculates overall business confidence by averaging the views of 1,200 companies on their business prospects and optimism about the UK economy.
The most recent IHS Markit/Cips manufacturing purchasing managers index (PMI), for January, showed that the sector has enjoyed its best performance for nine months. Another survey by the CBI (Confederation of British Industry) was also positive in suggesting “the biggest wave of optimism among smaller manufacturers for six years” with 45% of these SMEs reporting that they were more optimistic following the election.
In addition, the Bank of England has kept interest rates at the same level, despite expectations that they would be cut. The outgoing BoE Governor Mark Carney said: “the most recent signs are that global growth has stabilised”.
But much of this is about sentiment where the proof of the pudding will be in increased orders on business’ books and improved cash flow.
On the positive side, productivity (output per hour) increased in January, by 0.1% in the services sector and by 5.7% in construction, according to official figures from the ONS (Office for National Statistics). The results of another survey by the finance firm Together concluded that British SMEs plan to invest £1.7bn over the next two years.
It has to be said that much of this “improvement” is from a pretty low base given that the economy ended 2019 at near-stagnation point, so this is not yet really any indication of a growing economy, although it is a positive shift.
There have also been some encouraging government noises about increasing spending to address the economic inequalities between the North and Midlands and the South which could be good news for Northern businesses. Other government initiatives in the pipeline are likely to benefit the house building and construction industries.
Despite the optimism there is a long way to go before most businesses and especially those involved in farming, fishing and food export, will know the shape of any proposed trade deals, with the EU and with the USA so the short-term for them is not especially encouraging.
The Chancellor, the Foreign Secretary and the Prime Minister have all in the last few days signalled a very hard line negotiating position with the EU over the shape of any agreements which the Government hopes to achieve by the end of 2020. Whether this is a negotiation tactic or a ‘die in the ditch’ strategy we shall find out quite soon.
Concerning input to the outcome there have been some reports that the Government has been ignoring requests from business bodies, such as the CBI (Confederation of British Industry) and the FSB (Federation of Small Businesses) to include their representatives in the forthcoming trade negotiations with the EU.
There are also still the unresolved issues of how the current skills shortage and migrant labour issues will be addressed.
No doubt a level of certainty for some businesses will emerge during the budget, which is due to be announced on March 11. Well at least we shall learn more about the Government’s priorities.
In summary, while it is encouraging that there has been a return to more positive sentiments from UK business leaders, there is a long way to go before we can be confident that they are matched by revitalised UK business activity at home and abroad.

Categories
Business Development & Marketing Cash Flow & Forecasting Finance Turnaround

Price and environmental pressures in the cargo shipping sector – stormy waters ahead?

cargo shipping on stormy seaIn early April a national newspaper published a report on the captain and crew of a cargo ship who had been stranded in the Persian Gulf off the UAE for 18 months without pay or food.
The cargo ship, said the report: “became a floating prison from which he and his 10-man crew could not escape without losing their claim to thousands of dollars in unpaid wages.” The ship’s owners had got into financial difficulties but would not sell the ship because they “would not get a good price”.
This is becoming an all too frequent story and in 2018 alone according to the IMO (International Maritime Organisation) an estimated 791 sailors on 44 ships had been abandoned in this way as a slump in orders led to overcapacity in cargo shipping and took its toll on owners.
Over the last couple of years, a global economic downturn has been gathering pace exacerbated by Trade Wars between the USA and China leading to lower demand on trade routes between Asia, the USA and Europe.
Demand has also been affected by rising costs including for fuel, port handling, insurance and security. These have increased significantly over the past few years, not least due to piracy off Somalia and the recent threat by Iran to block the Straits of Hormuz.

Will 2019 bring any relief for cargo shipping?

Growth in the first 11 months of 2018, was the slowest recorded in the past decade for intra-Asia at 3.8% and the predictions are that European containerised imports may be stuck at a demand growth of no more than 2% for the foreseeable future.
Rates have been relatively steady for a couple of years but, it has been argued, they are barely recovered from a loss-making, low-rate 2016. For some charter cargo shipping companies rates are expected to remain loss making, leading to numbers of idle ships.
While there is some potential for demand from South America and Africa to grow, the outlook is very uncertain.
An added complication is that the IMO has introduced a mandatory cap on the amount of sulphur in ship fuel starting form 2020. Lower sulphur fuels are expected to be more costly than the current Heavy Sulphur Fuel Oil (HSFO).
The increased emphasis on climate change and environmental protection will play an increasingly important role in the cargo shipping sector as it will in other sectors and it will not escape from the geopolitical pressures of trade wars, rising populism and uncertainty over regulation due to these, Brexit and other issues.
It will be some time before there is any relief for the cargo shipping sector.

Categories
Banks, Lenders & Investors Cash Flow & Forecasting Finance General

Patience is wearing thin as business starts to confront reality

signposts which way to confront reality

Business activity has effectively been just ticking over with investment at a low ebb since the outcome of the June 2016 referendum to leave the EU.Business dislikes uncertainty and tends to retreat into its shell when faced with no clear way forward, but sooner or later maintaining the status quo risks a slide into genteel decline, as we have mentioned before in previous blogs.
While the Government repeats its determination that by the end of March it will trigger Article 50 to start of the process of leaving the EU, the bill to approve it is still grinding its way through the houses of Parliament.

Planning ahead means confronting reality now rather than putting it off

Meanwhile, with still no clear idea of what the “red line” terms for negotiating trade agreements will be, business seems to be running out of patience.
In the last two weeks, there have been a number of indications of the way things are moving.
Brexit Secretary David Davis admitted that it was unlikely that there would be a noticeable reduction in immigration figures for several years after leaving the EU, openly acknowledging how much the UK economy depends on European and other nationals to work in certain sectors, noticeably farming, construction, engineering and the caring professions.
At the same time the Prime Minister’s continued prevarication about EU nationals’ residence rights has apparently been too much for some, and, according to a report in the Independent, some 100,000 EU citizens had left the UK in the three months post-referendum, while more recent figures showed that 40,000 fewer people had come here to work.
This has prompted restaurant owners to delay or abandon plans to open new restaurants, particularly in London, reports the British Hospitality Association, but also recruitment difficulties are being reported by farmers across East Anglia, Kent and the Midlands.
It is not only in hospitality and farming that patience is wearing thin. This week it has been reported that BMW is planning to produce the Electric Mini away from the UK, probably in Europe, and that an exodus of some businesses from one of the country’s most vibrant and pioneering company sectors, “fintech” or financial technology, was on the point of getting underway.
The CEO of PRRO Group, one of the fastest-growing fintech companies, Simon Black, pointed out that moving this kind of business and getting through all the required compliance and licensing processes was a complex six-month process.
Waiting until the outcomes of Brexit trade negotiations were known, a minimum of two years hence, before starting the move was therefore not a realistic option.
It is a safe bet that once some businesses start thinking this way, momentum will build up and others will join the exodus as they confront the reality of what they might lose by waiting.
While planning for UK to leave the EU is planning for the inevitable, planning for the future of the EU is another matter that should also be considered.