Spring has sprung for UK retailers

The UK’s retail sector experienced big year-on-year growth in March, but department stores remain on red alert

The key findings from the Office for National Statistics showed

  • In the three months to March 2019 (Quarter 1), the quantity bought in retail sales increased by 1.6% when compared with Quarter 4 (Oct to Dec) 2018, following sustained growth throughout the first three months of the year.
  • All store types except department stores and household goods stores increased in the quantity bought in the three months to March 2019, when compared with the previous three months.
  • The monthly growth rate in the quantity bought in March 2019 increased by 1.1%, with food stores and non-store retailing providing the largest contributions to this growth.
  • Year-on-year growth in the quantity bought increased by 6.7% in March 2019, the highest since October 2016, with a range of stores noting that the milder weather this year helped boost sales in comparison with the “Beast from the East” impacting sales in March 2018.
  • Department stores were the only store type to decrease in the quantity bought when compared with March 2018, with a fall of 0.3% in March 2019.
  • Online sales as a proportion of all retailing increased to 18.6% in March 2019, from the 18.1% reported in February 2019.

Phil Mullis, Partner and Head of Retail and Wholesale at leading accountancy firm, Wilkins Kennedy, said: “These figures reinforce just how much of an impact last year’s ‘Beast from the East’ had on the UK high street; with this March’s mild weather helping strong year-on-year growth in respect of the value spent (7.3%) and the quantity bought (6.7%).

“Food stores contributed a significant chunk of this growth thanks, in part, to Mother’s Day (and food inflation), but on the flip side, people still aren’t going for big ticket items, which is driving the downfall at some household goods and department stores.

“The ongoing uncertainty surrounding Brexit and the fluctuation of the pound are some of the main reasons consumers are so reluctant to splurge at the minute.

“Given the volatility of the pound in response to Brexit movements, retailers importing goods would be wise to hedge against exposure to foreign exchange to aid budgeting certainty.

“While these statistics of growth are encouraging news for the sector, it was disappointing, yet hardly surprising, to see Debenhams enter administration.

“And finally, it is important to remember that retail isn’t dying, it is evolving to reflect what consumers now want when they are visiting the high street, and part of this process involves businesses either shutting down or receiving wake up calls to change and tailor their offering in order to survive.”

Over half of SMEs predict UK recession as Brexit bites

More than half (57%) of small and medium sized enterprises (SMEs) believe the UK economy will fall into recession this year, according to the latest SME Confidence Tracker from leading independent financial services provider, Bibby Financial Services (BFS). In line with this belief, confidence[1] among SMEs has declined by 5.6 points year-on-year, with UK businesses experiencing their least confident start to a new year since 2014.

This has had a knock-on effect on investment decisions; with the average amount of capital SMEs plan to invest in their business falling for the fourth consecutive quarter – from £103,648 in Q1 2018 to £64,600 Q1 2019.

This drop comes as an increasing proportion of businesses say they are holding back investment due to the uncertain economic environment within the UK, increasing from a quarter (26%) in Q4 2018 to a third (33%) in Q1 2019, the highest level since 2015. A similar proportion (30%) cite that uncertainty arising from the UK’s exit from the EU is holding them back, indicating there has been an impact on UK business investment because of Brexit.

Edward Winterton, UK CEO, Bibby Financial Services, commented: “If SMEs are the warning lights of our economy, this quarter signals to us that they see trouble ahead. We typically observe a seasonal bounce in SME confidence at the start of a year, as businesses begin with renewed optimism. This year, the bounce was lower than ever before, highlighting how Brexit uncertainty is taking its toll on UK SMEs.

“Political uncertainty is acting as a brake on the economy. It needs to end. Regardless of whether you supported leave or remain, Brexit has been an agonisingly slow process resulting in our SMEs pulling back on investment when our economy needs stimulus to grow.”

The data found that SMEs are calling for further support from the Government to help them through Brexit. Over two thirds (68%) would like the Government to introduce tax breaks for businesses, while almost two thirds (65%) want lower business rates, and half (50%) think the Government should ensure that tariffs on goods to the EU are avoided.

Winterton added: “There is often talk of protecting the City of London from Brexit, but our SMEs need protection too. I hope the Government will act to reduce the impact of Brexit on UK businesses.”

Operationally, SMEs are facing other challenges too, with almost a fifth (19%) telling us that rising costs were their biggest challenge. While others believed increased competition from other firms (16%) and late payment (16%) were their biggest threats.

[1] The SME Confidence Index is compiled by equally weighting SME sales performance over the past three months with anticipated sales performance over the three-month period ahead.

Consumer car finance market up by 2% in February

New figures released today by the Finance & Leasing Association (FLA) show that new business in the point of sale (POS) consumer car finance market increased 2% by volume and 6% by value in February 2019, compared with the same month in 2018.

The percentage of private new car sales financed by FLA members through the POS was 91.1% in the twelve months to February, 0.1 percentage points lower than in the same period to January 2019.

The POS consumer used car finance market reported new business in February up 2% by volume and 7% by value, compared with the same month in 2018.

Commenting on the figures, Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said: “The POS consumer car finance market reported further modest new business volumes growth in February, as consumer confidence remained subdued amid uncertainty about the outlook for the economy.”

“We continue to expect new business volumes in 2019 overall to be at a similar level to 2018 if there is a reduction in Brexit-related uncertainty.”

Investment in the UK set to rise, according to new research

According to new research by Master Investor Ltd. (‘Master Investor’), 85% of investors are actively looking to invest in the UK in 2019 with more than a third (37%) highlighting that this number has increased over the last few years.

The research by Master Investor, the UK based investment media and events company that delivers independent, financial commentary and analysis to UK private investors and traders, featured respondents that were on average 54 years old and in the majority, either self-directed or ISA investors. They claimed to have around £387,000 in investable assets for 2019 which was up 31% compared to 2018.

According to Master Investor’s research, Healthcare (16%) and Technology (15%) are currently the most favoured UK sectors for investments. They were followed by Real estate (9%), Financials (8%) and Energy (8%). 7% selected both Infrastructure and Consumer staples while 6% selected IT and Telecoms.

The research also showed that nearly a fifth (18%) of respondents said they are most likely to favour UK small caps or AIM shares in 2019. This compared to 14% who chose UK blue chip equities.

One of the biggest investment trends in the last twelve months in the UK has been the growth in ethical investing. Indeed since 2008, assets in ethical funds have qrown almost four-fold from £4.5 billion to £16.9 billion towards the end of 2018. Master Investor’s research seems to support this trend with more than a third of (37%) respondents suggesting that they would be actively seeking more ethical investments in 2019.

James Faulkner, Master Investor, commented on the research: “The UK remains very popular for investors and is set to be even more popular despite a background of increasing economic uncertainty. We were interested to see the popularity of healthcare and technology which both offer a wide range of growth and value investments. Furthermore, ethical investing which remains a hot topic in the investment community, is something that we are seeing greater demand in.”

Master Investor organises the UK’s leading annual event for private investors. The Master Investor Show will be held on 6th April 2019 in London and will open its doors to more than 5,000 private investors. Attendees can learn from expert speakers on how to make the most of savings, talk directly to CEOs of companies they can invest in and hear leading entrepreneurs, investors and fund managers speak about future trends and opportunities.

James Faulkner continues: “We are focussed on helping as many private investors as we can – whether this is through our events, free monthly magazine or online community. It’s an incredibly interesting time to invest and we are very much looking forward to our show on 6th April where we will be welcoming a record number of attendees.”

First-time buyers take advantage of cautious housing market

NAEA Propertymark is today issuing its February Housing Report.

Demand for housing

  • The number of house hunters registered per estate agent branch fell by 15 per cent in February, from 297 in January, to 252
  • This is the lowest figure since July 2013, when agents recorded 250 prospective buyers on average per branch
  • Year-on-year, demand for housing has fallen by a fifth (18 per cent) from 309 in February 2018, more than two fifths (41 per cent) from 2017 and 46 per cent from 2016 when there were 463 house hunters per branch.

Sales to FTBs

  • FTBs took advantage of reduced competition in the market last month; as demand fell, sales to the group increased, hitting a seven-month high of 30 per cent
  • The last time FTBs experienced this rate of sales was July 2018 when they benefited from the annual summer lull
  • Month-on-month, this figure has increased by four percentage points from 26 per cent in January.

Supply of available properties

  • The supply of available housing fell from an average of 36 properties per member branch in January to 34 in February
  • This figure has not moved significantly from February 2018 when there were 35 properties available to buy per branch.

Sales agreed

  • The number of sales agreed rose in January, and remained high in February, with seven recorded per branch
  • Year-on-year, this fell slightly from eight in February 2018.

Mark Hayward, Chief Executive, NAEA Propertymark said: “With demand at a seven-year low, buyers are approaching the market with caution. As we move into spring, we would usually expect to see an increase in activity, but house hunters are evidently delaying their plans until the impact of Brexit is clearer. Over the last seven months however, we’ve seen periods where FTBs have taken advantage of reduced competition and driven their transactions forward, and this really picked up in February.

“The next few months will be very telling – will activity pick up once there’s further clarity on what Brexit means, or will it push the housing market into a deeper pool of uncertainty? Time will tell, but in the meantime both buyers and sellers should feel positive. There are still house hunters searching for properties and there are still new homes coming onto the market.”

Online learning tops university IT wish lists

Online learning tools have been ranked as the most important technology for British universities, proving twice as popular than any other type of tech.

A new survey carried out by Jisc and ucisa, also finds that 68% of higher education (HE) digital leaders feel the effective use of this technology is key to digital transformation projects, with artificial intelligence (AI) and machine learning in joint second (32%). Improving student experience is the biggest driver for tech adoption (91%), above improving workforce productivity (71%), saving costs across the organisation (41%) and improving staff morale (11%).

The Digital leadership in HE report also highlights the progress made by universities in strategic digital transformation. More than half (53%) have a digital strategy in place, while a further 21% stated their strategy is integrated with others in the organisation.

There are barriers that need to be overcome before digital technologies are embraced at UK universities, however. Organisational culture was touted as the top challenge (70%), followed by financial constraints (48%) and a lack of capability or capacity in IT (41%).

For online learning, some raise concerns that such tools undermine the worth of a physical campus, but almost half (48%) of academic staff have digital tools embedded into their ways of working.

Josh Fry, Director of Cloud at Jisc, commented: “It’s heartening to see HE institutions throughout the UK increasingly making progress with their digital strategies. I truly believe that the technology priorities recognised in the report – such as online learning, AI and machine learning – can result in improved experiences and greater accessibility for a wider range of students, whilst continuing to make the UK the most digitally advanced education and research nation in the world.

“Innovation must have a purpose, and it is important to take a whole-campus approach to a digital strategy before implementing new tools; technology initiatives work much better when aligned with an organisation’s business and teaching and learning strategy. Digital leaders in HE must work out how ‘disruptive’ technologies can be introduced into methods of working in a way that encourages engagement from academic and support staff.”

Trevor Baxter, IT Solutions Director at King’s College London highlighted that learning tools such as MOOCs (Massive Open Online Courses), Virtual Reality, Mixed Reality and 3D are beneficial for learning purposes. He said: “We need to start looking into these technologies more because if we don’t, we can actually lose students coming from abroad to study in our universities.”

John Beaver, Director of IT Services at Bath Spa University, added: “For us, AI is a big interest, both as a technology that we may apply for student experience purposes, such as an AI that might find books of interest in the library for a student knowing what they’re doing or recommend particular modules or courses that may be of interest to them.”

Peter Tinson, Executive Director at ucisa, said: “In the age of Education 4.0, when we must constantly adapt to prepare our students for the changing landscape of the job market, it’s critical that universities continue on their digital transformation journeys in order to ensure the premium experience student expect. This report highlights some really exciting examples to follow, and we look forward to hearing more in the coming weeks and months.”

Prospects for Open Banking

David Firth, head of product for TransUnion Open Banking, talks
to CCRMagazine about what lies ahead.


How will Open Banking bring new data to the industry?

Open Banking paves the way for a data revolution, allowing consumers to quickly and securely share their banking information with accredited third parties. This new data will have a significant impact on how consumers apply for financial products in the future, and how businesses use this data to offer improved services and carry out more detailed affordability and creditworthiness assessments, ensuring that products are appropriate and sustainable.

Consumers can now login directly with their bank to grant consent for FCA-registered third parties to access their financial information. This information is in a digital format, rather than a printed or a PDF statement, and, therefore, can be automatically categorised, so that creditworthiness and affordability assessments are much quicker, or even automated.

As Open Banking becomes more widely adopted across the lending industry, we may see it start to become commonplace during those customer journeys that do not fit the norm, such as consumers with a thin credit file, where a decision cannot be made using the standard lending policies. In the future, we may also see Open Banking form a core part of the standard application process because the data can be used to better ensure products are suitable and sustainable for consumers.

What technical innovations will be needed to allow that to happen?

Open Banking relies heavily on governance and standards that are coordinated by the Open Banking Implementation Entity (OBIE), which has been a significant programme of collaborative work across banks and third parties.

Beyond the industry standards, there are a number of technical innovations that are required to ensure Open Banking can be used to its full potential. Key to this is the creation of a streamlined consumer journey and experience that guides users through the consent, bank authentication, and authorisation journey. The fundamental next step is where the industry will see a focus of innovation over the coming years, focusing on how the consumer’s data is processed to ensure accuracy and depths of insight.

The data returned through Open Banking is in a machine readable, but raw format. It must be categorised so we can understand what each line of data means in as much detail as is necessary. Once understood, it must then be reviewed against affordability and creditworthiness rules set to help inform a lending decision. This must all be done within a number of seconds, and with utmost accuracy to ensure a fair and suitable outcome is reached.

Which sectors have been the quickest to adapt to the new possibilities and why?

As is often the case, it is not necessarily a specific sector that is moving faster, but rather fast technology adopters across a number of sectors. These fast movers will tend to be the more cutting-edge companies who prioritise new technology developments and want to utilise them as soon as possible, to realise the range of benefits they bring.

Our experience shows that, unsurprisingly, the lending industry and surrounding sectors have a keen interest in Open Banking. This was confirmed in the research we conducted with Forrester Consulting which showed that eight out of 10 financial firms are either adopting or planning to adopt Open Banking, or are interested in doing so. We expect 2019 to be a transformational year for Open Banking as many more companies adopt and trial new services.

What do the customers think of this, and how should the industry seek to educate them?

Open Banking is largely unknown to consumers at the moment, as our own consumer poll illustrated, with one in four saying they had not heard of it. This is not overly surprising. Consumers are often unaware of the underlying technology or services that are powering their experiences or journeys. They do, however, respond to adopting new services if the benefits and value exchange are clear, so there needs to be greater awareness of these.

There are substantial benefits for firms in adopting Open Banking, due to processing efficiencies or better decisioning, but there are also a range of consumer benefits. These include quicker application journeys and the availability of a wider selection of products and services. The benefits realised by both consumers and businesses will see a gradual adoption of Open Banking, and it will become a mainstream process in the years to come, assuming that the benefits exchange remains the focus.

UK small businesses plan ahead despite Brexit paralysis

More than two in three (68%) small business owners have put plans in place to grow their business over the next three months – and even 59% those that fear they will struggle to survive in an uncertain year are working on positive plans to turn their business around – according to new research from Hitachi Capital Business Finance.

The findings come at a time when the proportion of UK small businesses predicting growth has hit a five-year low (down from 39% to 34%). Nonetheless, despite prolonged Brexit uncertainty, the new Hitachi data reveals a tenacity and determination among the UK small business community to keep calm and carry on, even through an unprecedented period of political and economic change for the country at large.

The Hitachi data also suggests it is Britain’s youngest small businesses that are the most can-do in putting growth plans in place for the first three months of 2019. Overall, 87% of business owners aged under 35 have been working on new growth plans (compared to 55% of those aged 55 or over). Further, the UK’s youngest businesses (those trading for less than five years) were most assertive in working on new growth initiatives (71%). With London and Manchester growing as the UK’s top tech hubs (and cities for tech jobs), the Hitachi research also noted that London (78%) and the North West (71%) were the regions where small businesses were most likely to be tackling Brexit uncertainty with proactive growth plans.

What are small businesses prioritising to achieve growth?
As part of the latest instalment of Hitachi Capital Business Barometer, which tracks small business outlook and confidence over time, Hitachi asked a nationally representative sample of 1,177 small business decision makers which initiatives they were considering in order to achieve growth in the three months to April 2019. The results paint a picture of what the small business community will be prioritising during the critical Brexit transition period in the weeks ahead.

Keep costs down and carry on
The number one issue for small businesses was controlling fixed costs. During a period of rising rents, business rate hikes and a weak pound, 41% of respondents said cost control was a top priority to help their business grow in uncertain times. As the perceived importance of cost control hits a five-year high, a further 18% of respondents said they intended to tackle late payment. Despite recent moves by the Government to tackle this issue, there is no evidence that anything as dampened this issue for small business owners. Concern over tackling late payment is at its highest level since the start of 2017.

Cashflow remains king
Improving cash flow has also hit a five-year high as a priority for small businesses to tackle (22%). The perceived need to tackle this issue was most prevalent in the manufacturing (40%), distribution (38%) real estate (38%) and retail (33%) sectors. It was also a bigger issue among larger SMEs with a turnover of £10 million or more – ventures that have more complex infrastructures and bigger cost bases to manage.

Expanding the business footprint
Expanding into new overseas markets (16%), hiring more people (15%) and investing in new equipment (12%) were all popular initiatives to secure growth – although in all these areas there was a slight dip on 2018, suggesting some small businesses could be putting on hold physical expansion plans until there is greater certainty on the Brexit outcome.

Looking an industry sectors, small businesses in agriculture were most likely to be planning to invest in new equipment (31%). Expansion into new overseas markets was led by the IT and telecoms sector (49%) and enterprises in the media and marketing sector (34%). Small businesses in the IT and telecoms sector were also those most likely to be hiring new staff in the months ahead (35%).

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance, commented: “We are all living with political and economic uncertainty at the moment – and getting used to living with it will become the new norm for most businesses in 2019. It is heartening to see so many small businesses going towards uncertainty and seeing it as a time to improve their business, get it in better shape and achieve growth. For smaller businesses that can adapt faster and move quicker, 2019 could be a year of great opportunity.

“That said, finance is going to be key – possibly more so than ever. At a time of uncertainty, cutting fixed costs and strengthening cash flow will be a fundamental requirement for many small businesses in order to simply operate. Beyond that, getting the right kind of finance deals and support is crucial. More than ever before, small businesses need access to specialist financial solutions that can nurture growth and expansion without placing undue pressure on cashflow. At Hitachi Capital Business Finance we have a range of financial products that do just that. Our heritage is in manufacturing not banking and as a leading finance provider we are in the business of helping small businesses growth through all the stages of an economic cycle. It makes business sense to help business customers stay in business and grow – and we will be expanding our support for the small business sector during 2019.”

Portugal can use its economic recovery to build up resilience, says OECD

Portugal’s economic recovery is now well established, with GDP back to pre-crisis levels, a substantially lower unemployment rate and renewed investment and domestic consumption now joining a robust export sector to drive the economy. Efforts should now focus on reducing vulnerabilities to build resilience to future shocks, according to a new OECD report.

The latest OECD Economic Survey of Portugal forecasts GDP growth for 2019 and 2020 of 2.1% and 1.9% respectively. A drop in the unemployment rate to below 7% and rising earnings are driving consumption, adding to the economic lift from tourism and manufacturing, which were behind much of the 60% rise in export volumes that the Portuguese economy experienced from 2009 to 2017.

The Survey, presented in Lisbon by OECD Secretary-General Angel Gurría alongside Portuguese Minister Assistant to the Prime Minister and for the Economy Pedro Siza Vieira and Deputy Minister and Secretary of State of Finance Ricardo Mourinho Félix, says Portugal should now take the opportunity to further shore up its public finances and banking sector.

To improve living standards and address still-high levels of poverty and inequality, Portugal should also aim to raise productivity, which has stalled in recent years, and get the long-term unemployed back into jobs.

At around 120% of GDP, Portugal’s public debt is falling but still among the highest in the OECD, limiting the country’s ability to respond to external shocks. Reducing the debt will require ongoing fiscal consolidation and further measures to offset the rising costs of ageing, including optimising health spending and further reducing pathways to early retirement. On the revenue side, the tax base could be broadened by reducing consumption tax exemptions and expanding the use of environmental taxes.

In the banking sector, there is a need to reduce the share of non-performing loans, which have declined since a peak in 2016 but remain high by OECD standards.

“Portugal has made tremendous progress restoring its economy to health since the financial crisis, but challenges remain in public finances and the financial sector,” said OECD Secretary-General Angel Gurría. “The more Portugal can do to build up resilience while its economy is turning over nicely, the better it will be able to weather any future shock, ensuring the sustainability and inclusiveness of its economic recovery.”

External risks to Portugal’s outlook could include a slowdown in economic activity in major trading partners and future rises in Eurozone interest rates.

The Survey includes a thematic chapter on efficiency in the judicial system and its effect on productivity and economic performance. It notes that despite reforms to reduce the time needed to resolve a civil or commercial case in the court system, cases still typically run longer than in other OECD countries. The report also highlights the importance of continuing efforts to foster integrity and promote transparency in both the public and business sectors, as a key priority.

A second thematic chapter focuses on Portugal’s export performance. With exports still relatively low as a share of GDP, it recommends doing more to improve competitiveness on international markets, to open up to external trade and to participate in global value chains. This could include removing barriers to competition, to further encourage exporting firms to compete on price and quality, and making efforts to improve domestic infrastructure and skills.

Asset finance market grows by 7% in December

New figures released today by the Finance & Leasing Association (FLA) show that asset finance new business (primarily leasing and hire purchase) grew in December by 7% compared with the same month in 2017, and by 5% in Q4 2018 as a whole.

The plant and machinery finance and commercial vehicle finance sectors reported new business up in December by 29% and 18% respectively, compared with 2017, while new finance for IT equipment was up by 16% over the same period.

Commenting on the figures, Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said: “The asset finance market reported strong growth across many sectors in the final quarter of 2018 which contributed to a record level of new business in 2018 as a whole of almost £33 billion. This represented the eighth consecutive year of growth.

“The temporary increase in the Annual Investment Allowance for plant and machinery from 1 January 2019 announced in the last Budget should support further growth in this sector over the next few months.”