Issue 75: Credit Insurance News Digest

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The potential economic impact of Brexit for London, the UK, and Europe. PwC has advised that following its vote to leave the EU, the UK economy is expected to face challenges in the short term, with high levels of uncertainty leading to lower GDP growth. In light of this, PwC has revised down its GDP growth projection for the UK to 1.6% and 0.6% per annum in 2016 and 2017 respectively (down from 1.9% and 2.3%), and advised that although quarter-on-quarter growth could fall to around zero in Q4 2016 and Q1 2017 the UK should narrowly avoid a recession. PwC’s analysis has also identified the 10 EU countries that export the most to the UK (relative to the size of their economies), and consequently need to prepare for different trade arrangements in the future. Ireland (19.9%) and Cyprus (9.5%) sit at the top of this list. Of the larger European economies, Germany exports the most to the UK relative to the size of its economy (3.7%). France (2.5%) and Italy (1.7%) don’t rank within the top 10. To read PwC's news release with a link to this month’s Global Economy Watch go to http://pwc.blogs.com/press_room/2016/07/the-potential-economic-impact-of-brexit-for-london-the-uk-and-europe.html.

British businesses are in a strong position to face Brexit challenges but expect at least six months of turmoil ahead. New research from Begbies Traynor has found that UK businesses across every sector of the economy were showing positive signs of stability in the run-up to the EU Referendum. However, after the severe market turmoil that immediately followed the Brexit decision, experts warn that it could be at least another six months before we see a ‘new normal’ in the UK economy. The research reveals that levels of ‘Significant’ distress fell by 4% during Q2 2016, from 274,595 struggling businesses in Q1 2016 down to 263,517 companies in the past three months, of which 93% were SMEs. The sector most exposed to economic volatility remains UK construction and real estate, in which 49,186 firms are classified as experiencing ‘Significant’ financial distress. To read Begbies Traynor's news release go to http://www.begbies-traynorgroup.com/news/business-health-statistics/research-shows-british-businesses-are-in-a-strong-position-to-face-brexit-challengesbut-expect-at-least-six-months-of-turmoil-ahead.

IMF cuts global growth forecasts following Brexit. The International Monetary Fund (IMF) has announced that it has cut its forecast for global economic growth this year and next as the unexpected UK vote to leave the EU creates a wave of uncertainty amid already-fragile business and consumer confidence. The IMF now predicts that the UK economy will expand 1.7 % this year - 0.2% less than forecast in April, before slowing to 1.3% next year - down 0.9% from the April estimate and the biggest reduction among advanced economies. For the euro area, the IMF raised its forecast by 0.1% this year, to 1.6%, but lowered it by 0.2% in 2017, to 1.4%. Global growth is now projected to reduce by 0.1% in both 2016 and 2017 to 3.1% and 3.4% respectively. Had it not been for Brexit, the IMF was prepared to leave its outlook for this year broadly unchanged as better-than-expected euro area performance offset disappointing US first-quarter growth. To read the IMF's news release go to http://www.imf.org.

The UK economy post-Brexit: flying through the eye of the storm. D&B has recently published a blog which stresses that although global markets have stabilised and risk assets have recovered relatively quickly from their post-Brexit sell-off, the vote to leave the EU will have a long-term impact on the trajectory of the UK economy. As such, D&B advises that the UK economy is now passing "through the eye of the storm", but will enter a technical recession at some point between the second half of this year and the first half of 2017. While D&B currently predicts full-year growth forecasts for 2016 and 2017 of 1.3% and 0.4% respectively, it stresses that the journey ahead remains long, fraught with uncertainty, and full of hazards and that ongoing lack of clarity will continue to hamper business activity and could trigger further periods of Brexit-related market volatility. To read D&B's blog go to http://www.dnb.co.uk/blog/the-uk-economy-post-brexit.

UK creditors face a £8 million insolvency fees hike. R3 has warned that new and increased government insolvency fees, introduced in the UK on 21 July, will hurt creditors of insolvent companies and undermine the UK insolvency regime. Among other new fees, the government is introducing a charge of £6,000 in every compulsory liquidation or bankruptcy, even when the case is handled by a private sector insolvency practitioner rather than the government’s Official Receiver. A further fee of 15% of all realisations will apply in all Official Receiver-run cases. The government estimates the new fees will cost creditors almost £8 million per year. Andrew Tate, R3 president, commented: “The government is putting creditors at risk of seeing fewer returns, and is asking them to pay more for the pleasure. The additional £6,000 charge for every case, even on the simplest case where the government does nothing, is essentially a tax on creditors who have already lost money.” To read R3's news release go to https://www.r3.org.uk/index.cfm?page=1114&element=27327&refpage=1008.

Amount of invoice finance received by UK small businesses up over 60% in a year. According to Asset Based Finance Association (ABFA), the amount of finance advanced to the UK’s smallest businesses through invoice finance jumped by over 60% in the last year, reaching £711 million up from £435 million the previous year - the highest year on year increase since the recession. The total amount advanced to UK and Irish businesses through asset based finance at the close of 2015 was £19.3 billion, up from £18.9 billion the previous year. Around 80% of asset based finance is invoice finance, while the other 20% represents the fast-growing area of asset based lending. To read the ABFA's news release go to http://www.abfa.org.uk/news/122/Amount-of-invoice-finance-received-by-UK-small-businesses-up-over-60pc-in-a-year.

UK High street sales see summer fall. According to the CBI's latest monthly Distributive Trades Survey, UK retail sales fell at the fastest pace in over four years in July, with weaker consumer confidence a likely factor in the immediate period following the EU referendum. Companies expect sales volumes to decline at a broadly similar pace as this month in the year to August. Within retail, sales by grocers, and furniture and carpets stores were the primary drivers of the drop in overall volumes. But some sectors bucked the trend, with non-specialised department stores and retailers of footwear and leather goods reporting higher volumes. In addition, orders placed on suppliers dropped at the quickest pace since March 2009 and are expected to fall further in August. To read the CBI's news release go to http://news.cbi.org.uk/news/high-street-sales-see-summer-fall/.

A cloud of uncertainty hangs over manufacturing post-Brexit. According to the latest quarterly CBI Industrial Trends Survey, over the last quarter manufacturing new orders growth expectations fell to a four-year low and concerns over economic and political conditions abroad as a constraint on exports orders are at their highest level since 1983. However, competitiveness in international markets has improved at the strongest pace in over six years, with a further boost expected next quarter. As a result, export orders are set to rise at an above-average pace over the next quarter. Rain Newton-Smith, CBI Chief Economist, said: “Manufacturers picked up the pace over the second quarter, with output growing solidly. We’re also seeing encouraging signs of a boost to export competitiveness from a weaker sterling. But it’s clear that a cloud of uncertainty is hovering over industry, post-Brexit" To read the CBI's news release go to http://news.cbi.org.uk/news/manufacturing-prospects-muted-after-brexit-cbi/.

1.4 million UK SMEs forced to write-off debt each year. According to Bibby Financial Services (BFS) latest SME Confidence Tracker analysis for Q2, more than a quarter of SMEs in the UK, suffer from bad debt and 27% have written-off money in the past year. Across the business population, findings equate to more than 1.4 million SMEs suffering from bad debt over the past 12 months. The average amount scrapped by each business due to customers not paying invoices was £11,829. SMEs in the transport (30%) and construction (29%) sectors were the worst hit with construction businesses writing off almost £15,000 on average over the past year. To read BFS' news release please click here.

UK Manufacturers’ business confidence has dropped across the board following the vote for Brexit. A new report from EEF and BDO LLP shows that manufacturers’ business confidence has taken an across the board beating following last month’s vote for Brexit. Every region in England and Wales has suffered a decline in optimism with the biggest falls seen by manufacturers in the South East & London and Wales, and the smallest by firms in the North East. Ms. Lee Hopley, Chief Economist at EEF, commented: “The Brexit vote has put the manufacturing sector’s recovery in jeopardy. The growth path is now uncertain in all regions and, while firms in the South East & London and Wales look better placed to ride the storm, companies in the Eastern counties, North East and the South West appear more downbeat about their ability to cope." To read BDO's news release go to http://www.bdo.co.uk/press/manufacturers-confidence-drops-in-every-region.

Brexit blow to business confidence. According to Deloitte’s latest CFO Survey, confidence among CFOs of the UK’s largest companies has taken a sharp fall following the referendum on the UK’s membership of the EU. The survey shows significant downturns in corporate optimism and risk appetite, with 95% of CFOs saying that the level of uncertainty facing their business is above normal, high or very high, up from 83% in Q1 and returning to levels last seen in the Euro crisis in 2012. In addition, 73% of CFOs said that they are less optimistic about the financial prospects for their company, up from 32% in Q1, the highest level registered since Deloitte’s survey began in 2007 and higher than during the fallout from the Lehman collapse in 2008. Just 8% of CFOs say now is a good time to take risk onto their balance sheet, down from 25% in the last quarter and its lowest level since Q1 2009. To read Deloitte's news release go to http://www2.deloitte.com/uk/en/pages/press-releases/articles/deloitte-cfo-survey-brexit-blow-to-business-confidence.html.

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