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Banks, Lenders & Investors Business Development & Marketing Finance General

Politicians’ ignorance can have a negative impact on the global economy

beware the influence of politicians on the global economyAs 2018 draws to a close it makes sense to look at macro-economic trends that might inform our view of the future.
Economies tend to move in cycles from positive to negative and this is true for both national and global economies.
However, while it is true that the cycles rarely match simultaneously in different parts of the world, clearly a downturn in one region can have knock-on effects in another, as was the case in the financial crisis of 2008.
For some time now, various bodies, such as the IMF, have been predicting that another major global recession is looming. Some are even predicting that the next crash will be worse than 2008.
This is partly because the accepted wisdom is that the cycle tends to be over a 10-year period, but it is also because there appear to be headwinds building up.
A snapshot of the current state of global confidence, the global ECM (Economic Confidence Model) from July this year suggests that the USA may be moving into a serious high in 2020 regarding liquid assets (non-fixed), while the rest of the world is heading in the opposite direction. The Dow Jones has been heading ever upwards, while the UK, European and Chinese markets seem to have peaked and are heading downwards. This also applies to currency values.
According to Richard Partington, a Guardian economics correspondent, the potential headwinds for 2019 include a plateau in global growth along with slower growth predicted for the US and China, plus both public and private debt around the world being at a record high. Added to these, he says, are the risks from Brexit and from the US Fed hiking interest rates.
This is where the politicians come in
Despite the 2008 crash, and the subsequent measures taken by Governments and Central Banks such as using quantitative easing and keeping interest rates low to stimulate economic activity and requiring banks hold more capital to avoid a repeat collapse, both Governments, and investors, still have faith in Government debt in the form of bonds and property on the basis that economies are stable and will continue to grow.
Both are deemed “safe” and property is used as collateral for more debt. Nevertheless, some economists argue that the restrictions now placed on foreign investment in property have actually had the effect of devaluing it and also damaging consumer confidence.
So, by this logic, policies such as those of US President Donald Trump’s “Make America Great Again”, that encourage investment to return to the US, and his threats of trade sanctions against those economies that are perceived as competition to the US economy are unlikely to help to stabilise the global economic situation and instead would build up the recessionary pressures in the rest of the world.
The UK Government, too, has been taking steps to deter foreign investment in property. Then there is the rise of various so-called “populist” movements across the world, such as in Italy, Turkey, Hungary and elsewhere, which again focus on national interest above all. Another danger, according to Partington, is victories for populist parties in the forthcoming EU parliamentary elections in May 2019. The mood would appear to be one of increasing restrictions on global trade.
Inevitably, in the event of another crash on the scale of 2008, or worse, such policies will come back to bite us all, not just the politicians. But then we did vote for them!

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Business Development & Marketing Cash Flow & Forecasting General HR, Redundancy & Trade Unions Rescue, Restructuring & Recovery

Uncertainty and change may be a feature of the business future for a while

managers hiding after announcing changeIn so-called “normal” times no business can afford to stand still and hope to survive.
In the current economic climate following the UK’s general election, a precariously-balanced parliament with no party having a majority, and with the negotiations on leaving the EU yet to start, business will be facing additional pressures and uncertainties.
However, regardless the prevailing circumstances, change is likely to be a constant feature in business survival.
Change can be unsettling, especially for employees and therefore has to be managed effectively if it is not to cause disruption, lack of focus, worry and a consequent drop in productivity.

The key actions for helping employees cope with uncertainty and change

It is surprising how often employees pick up on potential changes in their workplace, especially tension among managers, even if they have not yet been informed.  Watching and listening is important to gauging how unsettled they might be.
Managers demonstrating concern and understanding about people’s feelings can reduce the feeling of powerlessness and that things are going to be imposed on them.
Anxiety among staff can become a source of worry, so a key ingredient in calming employee fears is to give them as much information as possible as soon as possible about any proposed changes the business may be planning.
In fact, it may prove even more productive to consult with and involve employees in what is being proposed.  They are the people who will have to implement and live with the changes and they may well have innovative ideas about how to make them work.
If the changes are going to involve either some redundancies, changes to working conditions or re-deployment consulting with staff representatives or a union may be crucial in ensuring that they are accepted.
Be aware also of the procedures necessary to comply with employment legislation especially as it relates to redundancies or changes to terms of employment. An up to date staff handbook with detailed redundancy and grievance procedures can be a useful source of reference for both staff and managers.
Once the plan for modernisation, restructure, or modification of working conditions has been settled managers can help employees to adapt quickly by arranging briefings.  People are more accepting of change if they understand what is being proposed, why it is necessary, and when it will be implemented.
Finally, training and support will enable employees to feel both involved, valued and competent to handle the new situation.

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Business Development & Marketing Cash Flow & Forecasting Finance General

What are the threats to UK farming in a post-Brexit world?

tractor and seed drill on field at sunsetThe UK farming industry uses 70% of the land in the UK and its efforts make the country 76% self-sufficient in home grown food.
It employs an estimated 400,000 people and the total income from farming in 2015 (the most recent figures available) was £3,769 million, contributing around £10.7 billion to the UK economy.
As a business farming cannot be short term and many decisions are made looking five years ahead.
But farming as a business is not now and never has been easy because of the many pressures farmers face, both natural and man-made. It is weather-dependent, with seasonal peaks and troughs and at the same time subject to well-known pricing pressures from the food producers and the large food retailers further up the supply chain.
There is no doubt that the UK’s decision to leave the EU is likely to have a significant impact on farming as a business.
Firstly, UK farmers have been used to a subsidy under the Common Agricultural Policy (CAP) that contributes an estimated 55% of farmers’ incomes, a total of £3 billion in 2015, according to data published in the Financial Times in late 2016.
While the Chancellor has said that the Treasury would replace any shortfall in EU funding to farmers that might arise between now and the end of the decade, there has been no word on what would happen after 2020.
This leads to a second threat, which is the pressures that farming faces from competitors both in and outside the EU after Brexit. There has been press commentary on a US trade deal that will expose UK to the lower standards for US farm products that allow hormone-treated animals and GM crops while European farming will presumably remain heavily subsidised giving it a competitive advantage over the UK.
Thirdly, many farming sectors rely heavily on seasonal labour for harvesting fruit and vegetables and in the Eastern Region, for example, labour from the EU has been crucial for the crop picking and packing period. Given that one of the primary issues on the minds of both those who voted to leave the EU and on the Government has been numbers of immigrants in the UK and in the absence of sufficient numbers of UK workers, the prospects of losing access to those workers is a major concern for farmers.
A final pressure that has been a well-rehearsed bone of contention for a number of years but has been given added impact by the devaluation of £Sterling since the referendum. With large retailers already passing on higher prices to shoppers from imported foods, the likelihood is that they will use their buying power to continue to squeeze farmers in order to keep their prices as low as possible.
Given all these pressures the challenges to the viability of UK farming are considerable.

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Banks, Lenders & Investors Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

What helpful indicators can SMEs keep an eye on?

worried businessmanCost and commodity prices have been very low for quite some time and the exchange rate will now mean they are likely to rise quite sharply over the coming months.
This will have an impact on costs for all kinds of businesses, from manufacturing to retail.  But given the ongoing uncertainty following the EU referendum what other indicators might be helpful to SMEs to monitor what is happening to the economic cycle and to economic activity?

Businesses will need to be patient

Economic activity among consumers and clients is the easiest and most immediate clue. In the retail sector are the end of season sales starting earlier than usual? Monthly figures for house sale activity and prices and for mortgage approval levels can also be a helpful guide to how confident consumers may be feeling. These are published monthly in arrears but it may be better to look at quarterly or even annual trends to get a clearer picture.
For business activity the monthly Markit PMI (Purchase Managers’ Index) is useful for measuring confidence and activity levels in both manufacturing and service industries.  The most recent one published last week and the first post-Referendum made grim reading with a headline that the UK economy had been shrinking at the fastest rate since 2009, immediately after the 2008 crash.
It found that manufacturing had dropped to its lowest level since February 2013 and that confidence levels in both sectors had fallen from 52.4 in June to 47.7.  Any figure below 50 means a contraction in activity.
Another perspective comes from the quarterly economic survey of business confidence from the British Chambers of Commerce (BCC).  Its most recent one, published in early July and covering April to June showed that there had been improvements in both manufacturing and service sector confidence and sales during the second quarter of the year for most regions in the country with only slight reductions in confidence looking ahead to the next quarter.
However, for those companies that may be struggling but have delayed making decisions on restructuring and on investment until after the referendum a key question will be what happens next to interest rates. Restructuring company Begbies Traynor has reported that company insolvencies were stabilising with fewer than 4,000 going into insolvency in the first three months of 2016, a rise of 5.4% on the previous three months but remaining lower than the same period in 2015.
The insolvency statistics are also reported quarterly in arrears so again it is likely to be a while before a clearer picture emerges.
What will happen to the economy will also depend on what actions the Bank of England and the new Chancellor, Philip Hammond, take in the next few months to stimulate the economy and how successful any measures they introduce are, bearing in mind that here too there is always a time lag.
Basically, therefore, the advice to SMEs is to keep calm and carry on while keeping an eye on the developments we have suggested above.
(Image courtesy of Vlado at FreeDigitalPhotos.net)

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Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

Budgeting for marketing when the business future is uncertain

marketing and its role in businessAt the moment there is a big question mark over the future prospects for business with many companies unsure what it holds.
This makes it a good time to establish precisely where the business’ strengths and vulnerabilities lie, hence our focus on housekeeping.
The topic for this blog is the allocation of marketing resources.
Businesses often make the mistake of cutting marketing budgets during hard times, when actually it is a time to consider doing the opposite.  However, it makes sense to reposition the strategy and goals.
Plainly, it is always important for potential customers or clients to be aware of the brand and its reputation, whether this be for high quality, fast delivery and/or cost-effective prices for their services or products. Readers of my blog of a month ago will be aware that companies cannot promise all three.

Re-focus the marketing budget

However, until the trading picture becomes clearer this is not the time to plan for growth and increase the marketing budget with that goal in mind. When the tide is coming in is the time to spend on customer acquisition but it is a costly exercise and easy to waste money.
Instead, in the short term, marketing spend needs to be re-focused, towards retaining and reassuring customers. That does not mean that a business should not reflect on the markets it might pursue in the future and perhaps cost marketing campaigns tailored to that purpose.
But the primary focus should be on securing existing home and, if relevant, overseas markets so the marketing spending should be 100% focused on this, on the return on the investment and on improving efficiencies to stand out from competitors and to survive whatever is coming.
The prospects of a recession in the economy are relatively high, particularly where, as in the UK, so much depends on consumer spending. Consumers are likely to be cautious, especially on spending on big items, when it is unclear what will happen to their jobs, their food and energy bills and to the value of their homes.
At the moment, therefore, services, retailers, construction companies and small manufacturers are all particularly vulnerable, especially those who focus on B2C markets.
They need to send out a message through their marketing about the benefits of their product or service, but also to spend wisely on improving that quality, speeding up delivery or reducing prices wherever they can.
(image courtesy of renjith krishnan at FreeDigitalPhotos.net)