ISSUE 74: Credit Insurance News Digest

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UK economy faces short, sharp shock. According to the EY ITEM Club Summer forecast, the UK economy, post-referendum, will take a very different path to the one expected three months ago. While the fundamentals will not change in the short term, there are likely to be severe confidence effects on spending and business investment, resulting in anemic GDP growth for at least the next three years, The EY ITEM Club is now forecasting GDP growth of 1.9% this year (down from the 2.3% it predicted in April) and expects growth of just 0.4% in 2017 (down from 2.6%) and 1.4% in 2018 (down from 2.4%). Peter Spencer, chief economic advisor to the EY ITEM Club, commented: “Longer-term, the UK may have to adjust to a permanent reduction in the size of the economy, compared to the trend that seemed possible prior to the vote." To read EY's news release go to http://www.ey.com/UK/en/Newsroom/News-releases/16-07-18---UK-economy-faces-short-sharp-shock-but-exports-offer-silver-lining-says-EY-ITEM-Club.

The worst June for retailers in ten years. According to BDO's latest monthly High Street Sales Tracker (HSST), the UK’s decision to leave the EU in last month’s historic referendum vote had an immediate impact on the high street. The HSST recorded a -3.6% fall in overall year-on-year sales for June, making it the worst June in over 10 years. Sales of lifestyle goods for the month were down -0.2% compared to June 2015, and fashion dropped to -4.9% - the sector’s second lowest monthly figure so far this year. Sales of homewares were down -6% year-on-year and non-store sales rose just 15.8%. A strong start to June saw overall sales grow 3.8% year-on-year in the first week, but the ‘Brexit effect’ hit retailers with increasing severity as the month wore on. Sales reversed to a -3.1% drop in the second week and by the final week of June – two days after the ‘leave’ campaign declared victory – overall year-on-year sales had plummeted -8.1%. June’s results make it the fifth month in a row that the UK’s high streets have seen negative growth, and it was also the first time in almost a year that all three sectors – lifestyle, fashion and homewares – recorded negative growth in the same month. To read BDO's news release go to http://www.bdo.co.uk/press/worst-june-for-a-decade-for-retailers-as-brexit-bites.

Sub-par UK economic growth even prior to EU Referendum. The latest British Chambers of Commerce (BCC) Quarterly Economic Survey suggests that UK economic growth was uninspiring even in the run-up to the EU Referendum. For example, the services sector – the UK’s main driver of economic growth – saw domestic and overseas sales fall ahead of the referendum, and manufacturing sales remained at an historically low ebb. The results suggest that even before the uncertainty caused by the EU referendum, uninspiring growth rates would have required future action to shore up business confidence and promote investment. Commenting, Dr Adam Marshall, Acting Director General of the British Chambers of Commerce, said: “Our latest survey results, captured just before the vote, suggest that many businesses have been operating in something of a holding pattern for some time." To read the BCC's news release go to http://www.britishchambers.org.uk/press-office/press-releases/bcc-quarterly-economic-survey-sub-par-uk-economic-growth-even-prior-to-eu-referendum.html.

Sharp drop in small business confidence. The Federation of Small Businesses (FSB) has reported that its Small Business Index (SBI) has found that small business confidence is at a four year low - the largest annual drop in the SBI since it started in 2010. The latest SBI, gathered before the EU referendum, also found that smaller firms are reporting falling profits and plan to cut jobs for a second consecutive quarter. Furthermore, despite improvements to both the availability and affordability of credit, just 12.2% of small firms now plan new capital investment in the next 12 months - less than half of the 31.9% planning the same a year ago. Mike Cherry, FSB National Chairman commented: “Even before the EU referendum result, our members were reporting tough business conditions right across the country. While the referendum result has settled the question of UK membership of the EU – there are many questions left unanswered . . .For the first time since 2009, the UK economy faces a real chance of a recession." To read the FSB's press release go to http://www.fsb.org.uk/media-centre/press-releases/fsb-reports-sharp-drop-in-small-business-confidence.

UK business optimism and business output at three year low. According to the latest Business Trends Report by BDO, the UK economy was already showing signs of slowing ahead of the European referendum, with business output and business optimism at three-year lows for the second month running. Peter Hemington, Partner, BDO, commented: “The uncertainty prompted by Brexit has disrupted investment in the UK economy, but the signs of a slowdown were already showing ahead of the decision . . . In all likelihood, whatever arrangements the UK eventually arrives at with the EU won’t look very different from what we have at the moment. So businesses cannot afford to get caught up in the hysteria." To read BDO's news release and three point Brexit plan go to http://www.bdo.co.uk/press/plan-of-action-needed-to-kick-start-uks-stuttering-economy. To read BDO's news release go to http://www.bdo.co.uk/press/plan-of-action-needed-to-kick-start-uks-stuttering-economy.

UK Export Finance supported 23% more exporters than a year ago. The UK Export Finance (UKEF) annual report and accounts show that the UK’s export credit agency is now supporting the largest number of exporters in 25 years, with a 23% increase since last year. 77% of the exporters were SMEs, and an estimated 7,000 companies in exporter supply chains also indirectly benefited. Altogether, UKEF supported more than £800 million in sales to 69 countries and issued £1.8 billion in export support. To view UKEF’s news release go to https://www.gov.uk/government/news/uk-government-announces-financial-support-for-record-number-of-exporters-in-2015-16.

Seven in ten UK SMEs report barriers to exporting outside the UK. According to new research from Hitachi Capital’s British Business Barometer, 69% of UK SMEs report coming up against hurdles when wishing to export outside the UK. The research (based on responses from 1,139 SMEs) found that paperwork was the top restriction for 26% of small business owners when it came to exporting goods, followed closely by legislative difficulties in foreign countries (24%) and lack of knowledge/ experience on exporting (23%). However, the research also stressed the significant earning that exporting offers SMEs (£44.9 billion in the month of June for the UK alone - the fastest growth since February 2010), and the potential that emerging economies such as India, China and the Middle East offer. To read Hitachi Capital's news release go to http://www.hitachicapital.co.uk/business-finance/newsplusinfo/seven-in-ten-uk-sme-s-report-barriers-to-exporting-outside-the-uk/.

Brexit vote creates uncertainty for businesses and UK insolvency regime. Commenting on the decision by the UK to leave the European Union, Andrew Tate, president of UK insolvency trade body R3, said: “There will naturally be uncertainty for UK businesses and the decision to leave could create immediate problems for some. Businesses should seek out informed, professional, and regulated advice to help them navigate any uncertainties they encounter, and the sooner they seek advice, the more options they will have.” He continued: “One key change is that it could become much harder to retrieve assets on behalf of creditors from across Europe. With some exceptions, once the UK leaves, a UK insolvency practitioner’s powers may no longer be automatically recognised elsewhere in Europe, nor will UK insolvency proceedings enjoy automatic recognition. New deals will need to be negotiated.” To read R3's news release go to https://www.r3.org.uk/index.cfm?page=1114&element=27153&refpage=1008.

European IPO proceeds predicted to be no more than €25 billion by the end of the year PwC’s latest IPO Watch predicts European IPO proceeds are unlikely to exceed €25 billion by the end of 2016 (less than half of 2015 when €57.4 billion was raised) following the UK’s vote to leave the EU, however, an uptick in activity towards the end of the year is expected if conditions improve. Total proceeds for H1 amounted to €14.4 billion, representing less than half of the activity observed during the highs of 2014-2015. Activity in Q2 however tripled compared to Q1 2016, despite the EU referendum in the UK impacting volume across the continent. Overall, 95 European IPOs raised €10.9 billion this quarter (50 IPOs raising €3.5 billion in Q1 2016). London was especially impacted, down 75% to €1.2 billion and representing only 11% of European activity, while the rest of Europe fared better with IPO proceeds only down 6% to €9.7 billion. To read PwC's news release go to http://pwc.blogs.com/press_room/2016/07/pwcs-latest-ipo-watch-predicts-european-ipo-proceeds-to-be-no-more-than-25bn-by-the-end-of-the-year.html.

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