Manufacturing sector remains subdued at end of second quarter

The performance of the UK manufacturing sector remained relatively subdued in June, especially when compared to the marked pace of growth seen before the turn of the year. Output growth moderated, to largely offset a mild acceleration in new order growth and improved job creation. The survey was conducted between 12-26 June.

At 54.4 in June, the seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) was a tick above May’s downwardly revised reading of 54.3 (originally 54.4) and stands almost four points below the 51-month high reached in November last year. The average reading over quarter two as a whole (54.2) is the weakest outcome since the final quarter of 2016.

Sector data indicated that the upturn remained broad-based during June. Output and new orders rose across the consumer, intermediate and investment goods industries. However, the overall rate of expansion in manufacturing output slowed, as growth of new order inflows improved only mildly. Some companies noted that higher output had been partly sustained through inventorybuilding and clearing backlogs of work.

Although the rate of increase in new business edged up to a three-month high, it remained among the weakest registered over the past yearand-a-half. Rates of growth in new work received were broadly steady in both domestic and overseas markets. Where an increase in new export business was reported, this was partly linked to increased sales to mainland Europe, China, South America and Australia.

June saw a solid improvement in the rate of job creation, with staffing levels rising at the quickest pace for three months. Employment increased across the consumer, intermediate and investment goods sectors. However, the overall rate of jobs growth remained below those seen through much of 2017.

Input cost inflation accelerated to a four-month high in June, with companies reporting a wide range of inputs as up in price. Some noted that cost increases were being exacerbated by shortages of certain raw materials. Part of the rise in costs was passed on as higher selling prices. Business optimism remained positive in June. Over 51% of the survey panel forecast output to rise over the coming year, linked to market growth, investment spending, organic expansion, planned promotional activity and higher capacity. However, the degree of positivity dipped to a seven-month low, as some firms expressed concerns about input price increases, possible future trade tariffs, the exchange rate and Brexit uncertainty.

Rob Dobson, Director at IHS Markit, which compiles the survey:

“The UK manufacturing sector ended the second quarter on a subdued footing. The turnaround in performance since the start the year has been remarkable, with impressive growth rates late last year turning into some of the weakest rates of expansion seen over the past two years in recent months.

“The slowdown in new order growth since earlier in the year has also left manufacturers increasingly reliant on backlogs of work and inventory building to maintain higher output. This is a position that cannot be sustained far beyond the immediate horizon. The trend in demand will need to stage a much firmer rebound if a further slowdown in output growth is to be avoided.

“How likely such a revival is remains in some doubt, with the June survey also seeing business optimism drop to a seven-month low amid rising concerns about possible trade tariffs, the exchange rate and Brexit uncertainty. Ongoing supply-chain disruptions, including raw material shortages, and signs of a renewed upswing in input price inflation may also jeopardise stronger manufacturing growth. With industry potentially stuck in the doldrums, the UK economy will need to look to other sectors if GDP growth is to match expectations in the latter half of the year.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:
“A gentle hush descended over the sector in June as growth of new orders was amongst the lowest in 18 months and the almost imperceptible rise in manufacturing output was more about housekeeping and clearing up backlogs than tackling new business.

“The undercurrent of uncertainty was once again the main culprit as clients hesitated to place orders resulting in the overall index average over the second quarter becoming the weakest since the end of 2016 and optimism falling to a seven-month low in June.

“Material shortages and the highest rise in input price inflation since February also disrupted supply chains so managers tried to beat future price rises by buying up materials already in short supply and in case suppliers continued to fail in their obligations as delivery times worsened again this month.

“This diminishing strength in the sector will be a setback, but with an increase in hiring and continued optimism resulting in new products and markets, the sector may yet beat the Brexit blues.”

Hampden & Co added to Paradigm lender panel

Paradigm Mortgage Services, the mortgage services proposition, has today (2nd July 2018) added private bank, Hampden & Co, to its lender panel.

From today, selected Paradigm member firms will be able to introduce any suitable high net worth clients to Hampden & Co, to access its range of bespoke lending products covering both residential and buy-to-let mortgages.

The bank currently lends to individuals, families and commercial entities such as limited companies, partnerships and trusts.

Hampden & Co lends on UK property to those resident in this country and those who have a current account with the bank; loans available include:

· Residential mortgages – both repayment and interest-only.
· Buy-to-let mortgages.
· Holiday let mortgages – for those with property rental businesses.
· Property loans – lending to fund the purchase of one property, where the borrowing is secured on a separate property.
· Family (Guarantor) mortgages.

The bank does not lend based on income multiples or via computer-based models; it looks at each individual, understands that wealthy individuals can have income from multiple sources and maintains a flexible approach when assessing affordability.

As well as salaried income, Hampden & Co also takes into account: pension income, property rental, investment and dividend income, director fees and income from Lloyd’s insurance activities.

One of the bank’s key requirements is that its banking staff meet with all prospective clients so that a full affordability assessment can be undertaken, and in order that suitable advice can be given where applicable.

John Coffield, Head of Paradigm Mortgage Services, commented: “Hampden & Co offers a bespoke lending service to clients and this new arrangement allows selected Paradigm member firms to introduce suitable clients to the bank in order to access its product range. As in the main market, there is an increasing complexity to many borrowers’ income sources – especially the case for wealthy individuals – and it’s important they work with lenders and banks that understand the need for a bespoke lending service.

“We understand that advisers who have access to these types of clients might be willing and able to introduce them to Hampden & Co, in order that they can benefit from the services on offer, especially if they are looking for larger loans and want a tailor-made offering. Therefore we have partnered with Hampden & Co to deliver a unique and bespoke offering to selected members.”

Graeme Hartop, Chief Executive of Hampden & Co, said: “We are delighted to be working with Paradigm and their mortgage intermediaries. Hampden & Co provides lending solutions to wealthy clients with more complex financial arrangements. All borrowing requests are dealt with on an individual basis and decisions made by our in-house experts.”

Shield FC Announces New Vice President Global Sales and Business Development

Shield Financial Compliance (Shield FC), a specialist RegTech provider, is delighted to announce that Eran Noam has joined the company as the VP Global Sales and Business Development. In this newly created role, Eran will focus on sales and strategic business alliances to support the growing interest from financial institutions in Shield FC solutions, principally Shield 2.0 since its launch in March.

Eran brings a wealth of experience with over 17 years in Enterprise Software sales and Business Development, including executive roles in NICE Systems and Qognify. He has significant knowledge of security and operational financial services market needs and how cloud and on-premises software solutions empower organisation’s to make smarter decisions based on advanced analytics of structured and unstructured data.

Eran commented “I am very pleased to be joining Shield FC at this exciting stage of the company’s development.” Adding, “Shield is bringing the latest AI and big data solutions to the thriving RegTech domain and uniquely addresses the Compliance officers requirements. Shield’s mission is to empower compliance officers with its revolutionary automated, accurate & timely Compliance Assistant.”

Shiran Weitzman, CEO at Shield FC commented, “We are delighted to welcome Eran to our leading team. Bringing someone with Eran’s background into the organisation is a key part of our strategic plans.” He continued “I believe our ability to deliver exceptional solutions and to support our clients is second to none and with Eran’s skill set, I am very confident that we will be able to widen our client base and partner ecosystem.”

Shield 2.0 has been developed to meet regulation requirements, including MiFID II, GDPR, MAR, Dodd Frank and FINRA, for financial institutions to capture, archive, analyse and investigate every single interaction. Shield 2.0 aggregates and analyses data sources (structured and unstructured eComms used throughout the lifecycle of a trade, including voice, email, instant messaging, market data chat, financial messaging, mobile, social media and web, through to order management system data) and delivers an interrogation engine to meet the specific needs of the compliance team; a correlated sequential view of trading events with fast, comprehensive and interactive timeline reporting in an intuitive front-end.

Another 153 UK estate agent insolvencies in the past year as pressure from online rivals grows

Another 153 estate agents have gone insolvent in the last year, up from 148 the year before, as the pressure from online rivals continues to increase, says Moore Stephens, the Top 10 Accountancy firm.

Moore Stephens says that more than 7,000 UK estate agents currently show signs of financial distress*.

Even larger estate agents look to be feeling the strain, with London estate agent Foxtons reporting a 15% drop to £24.5m in revenue in Q1 2018 from the same period last year. Shares in the UK’s largest estate agent Countrywide fell 25% in one day in late June, after it issued its second profit warning of the year.

The online estate agents market is growing, with the likes of Hatched and Yopa further increasing pressure on the profit margins of high street rivals. Traditional estate agents often have higher staff and property costs than online-only firms, meaning they can struggle to compete with the low commission rates of online services.

Moore Stephens adds that Government plans to ban letting fees charged to tenants may narrow the profit margins of some estate agents even more, as fees from tenants currently contribute significantly to the bottom line. Chancellor Philip Hammond announced the ban in the Autumn Statement 2016, but the Government now expects the bill to be passed in the spring of 2019.

The extra stamp duty surcharge of 3% of the value of a buy-to-let home introduced in April 2016 could also be contributing to problems for estate agents, with some buy-to-let investors choosing not to add to their portfolios. Sales volumes appear to be in decline, with the number of property sales in London alone falling 20% from 2014 to 2017, and the number of property sales UK-wide falling 1% in just the last year.**

Chris Marsden, Restructuring partner at Moore Stephens, says: “Insolvencies of high street estate agent are increasing as online competitors continue to chip away at their sales and undermine commission rates.”

“With the ban on letting fees stated to come into force in 2019, estate agents will struggle to pass those fees onto landlords.”

“Some areas in the UK are appear to have an excess capacity of estate agents, which could mean there is not enough business to spread around as property transactions stagnate.”

“Estate agents with a traditional model may have to look at whether they can reduce overheads and review their service offering to effectively compete in the current market.”

StepChange Debt Charity comment on latest Bank of England lending statistics

Today’s data from the Bank of England shows that consumer credit growth rates continued to slow in May, but remains rapid relative to 2009-12. Although net lending fell slightly on the month, at £1.4 billion, it was in line with the average amount borrowed monthly over the past year. The decrease was driven by a fall in the amount of other loans and advances (which includes personal loans, overdrafts and car finance), with credit card lending rates remaining broadly the same.

Peter Tutton, Head of Policy at StepChange Debt Charity said: “It’s encouraging to see consumer credit growth stabilise, and we must not become complacent with tackling and preventing problem debt affecting the most vulnerable households, as the FCA observed they faced higher overdraft charges in their retail banking review earlier this week.

“Whilst this month has seen a decrease in unsecured borrowing excluding credit cards, we must not lose sight of the impact of sustained pressure on already stretched household budgets in coping with the rising daily cost of living. We estimate 1.4 million people are using high cost credit for everyday bills, which highlights the urgency for developing and supporting affordable credit alternatives which can help vulnerable households manage periods of financial instability without plunging them into persistent problem debt.”

Want to buy your own home? We look at how forces personnel can get on the housing ladder

Thousands of military personnel may be missing out on buying their own home, despite having access to financial help from the Government, according to new analysis by mortgage lender Together.

Only 14,300 military mortgage applicants out of 194,140 serving personnel – or just seven per cent – have taken advantage of the Government’s forces help to buy scheme since it was launched, according to the latest Ministry of Defence (MoD) figures.

On the eve of Armed Forces day (June 30) Richard Tugwell, a director at the mortgage lender, has encouraged more armed forces staff to take advantage of the scheme.

He said: “These people who are fulfilling vital roles in protecting our country and it’s great to see the Government and some mortgage lenders supporting them when it comes to settling in a home of their own.

“Forces help to buy is an important part of giving our hard-working military men and women a vital step up onto the property ladder. However, the low take-up rate could suggest that many are not aware that this financial help is available and this needs to change.”

The scheme allows serving soldiers, sailors and airmen and women to borrow up to 50 per cent of their salary, up to a maximum of £25,000.

Loans are interest free, and can be used to buy their first home, move to another property on assignment or as their families’ needs change.

Chris Mason, regional mortgage sales manager at Forces Mutual, one of the UK’s largest financial services providers to the military, said: “We arrange a huge number of mortgages for members of the armed forces looking to purchase property under the Forces Help to Buy scheme, so we have seen a fairly good take-up. The scheme is a great way for first time buyers in the armed forces to get on the property ladder.”a

Meanwhile, under the Armed Forces covenant, military personnel can now rent out their homes without having to get a specialist buy-to-let mortgage. Previously, they would have had to ask their mortgage lender to change their residential mortgage if they were sent away on a tour of duty.

However, lenders such as Together will give personnel “consent to let” to allow them to rent out their homes without the time consuming – and potentially costly – need to swap to a buy-to-let mortgage.

Some lenders will charge a higher rate under consent to let, however, others such as Together charge a one-off fee. They will also agree consent to let the first day after the house sale completes.

Mr Tugwell said troops may struggle to obtain mortgage finance from mainstream banks and building societies, because they could have an incomplete credit record from being stationed abroad, for example. They may also have adverse credit or be buying a home on non-standard construction, such as a concrete prefab, which, again, could mean them failing foul of high street lenders’ criteria.

The outdated tradition of housing troops in barracks is being phased out under the military’s Future Accommodation Model (FAM) for housing. The Ministry of Defence’s (MoD) housing review is expected to provide money for service personnel to buy or rent homes near bases, rather than live in them. For years, troops have complained of living in sub-standard and decrepit homes.

A pilot of the long-term FAM scheme began in October last year and is expected to be rolled out to the majority of army bases by 2030.

Dealers Need to Be More Imaginative in Embracing Online Retailing

The lessons from High Street retailing in 2018 so far, should be informing car retailers that they need to be embracing a more imaginative approach to their online retailing, recognising that without a clear and well-executed digital strategy they are at risk. This was the stark warning from Codeweavers Shaun Harris at the company’s 2018 Automotive Vision Conference.

Today, online car retailing experience is typically functional rather than engaging; car retailers need to make the online car buying experience social and enjoyable and they need to work at sustaining this personality continuously. “Dealers need to break free from selling cars to selling their personality and to do this they need to get creative,” reflected Harris, adding; “this does not necessarily mean being ‘funky’ it is about being distinctive.”

Restaurants typically recognise the importance of the ‘total meal experience’ in their offer as a differentiator. This refers to the need to stimulate all the senses in the restaurant, overlaying this with the personality of the business and its people. These experiential and social elements will largely outweigh the importance of the food itself, moving a functional need for food/entertainment to a far higher level. Harris notes; “If an activity is transactional it can be done online and large elements of car buying can fall into this category. Fail to add any experiential, personality or social attributes to the online experience and the risk and danger of commoditisation is all too real.”

The importance of social interaction, observed by Harris, is essential in creating a quality relationship and is reflected in the changes in High Streets across the UK. Social retailers such as barbers, nail salons and tattoo parlours are increasing, while functional services such as banks, travel agents and estate agents are in decline. Without any social element, the latter have all moved to online transactional services. However typically these former High St brands are devoid of the personality and engagement that could have made them stand out from the online crowd.

The shift dealers need to make is to build their online personality, to develop broader, fresher content that is interesting and useful and that moves beyond the functional car and F & I attributes. This online brand personality needs to shine through and right now, the territory is being left to disruptive new online brands, as Harris concludes:

“Arguably car dealers are often the equivalent of 1980s/90s shopping mall retailers, where most were broadly similar and that by adopting a ‘birds of a feather flock together’ principle, if sufficient shoppers came to the mall, enough footfall would inevitably come into each participating store. This is no longer true, shoppers aren’t coming in the same volumes and are seeking the distinctive and social experience. Cars may be comparable, but the experience online and in-store is not. Dealers can succeed by tapping into this change.”

Shanghai bank approves 9 million credit card applications with FICO

Shanghai Pudong Development Bank (SPDB) Credit Card Center, a credit card lending pioneer in China, has increased its customer base using originations powered by technology from analytics software firm FICO. SPDB Credit Card Center’s total number of credit card applications using originations driven by a big data AI analytics strategy has exceeded 9 million, since January 2017. During this incredible growth, SPDB has maintained a controllable risk level while increasing its origination rate more than two-fold to 88 percent of applications.

For its achievements, SPDB has won the 2017 FICO Decisions Award for Customer Onboarding and Management.

FICO’s origination and big data AI analytics solution was introduced with the aim of overcoming the challenges brought by the rapid development of SPDB’s credit card business. One of the key limitations holding back speedy originations was the limited credit data available on customers.

“Using custom scorecards and models from FICO built using Big Data AI analytics, SPDB Credit Card Centre has managed to significantly improve its risk assessment of consumers with either thin files or no files at the People’s Bank of China credit bureau,” said Sandy Wang, managing director in China for FICO. “The coverage rate or scorable population of the FICO models built using big data AI analytics, covers more than 75 percent of applicants.”

Using the FICO solution has enabled SPDB to approve more people while controlling credit risk. Compared to SPDB’s control group, the FICO big data AI analytics strategy has delivered a 50 percent lower risk level but an approval rate that is four times higher.

Automating Collections

SPDB has also deployed a collections system from FICO, which has automated many tasks and freed human agents to work on high-value cases. FICO’s Customer Communication Services (CCS) solution incorporates machine learning and sophisticated analytics to deliver a collection service that can adapt to the specific requirements of the customer base.

The multi-channel solution can be optimised and adjusted on an ongoing basis, to meet the changing collection business objectives. It is estimated the solution is currently shouldering the volumes previously completed by 60 human agents while maintaining the same cure rate.

The CCS solution has allowed SPDB Credit Card Center to more efficiently utilise its team members on the more challenging collection work. It has also allowed the business to scale in a way that just would not have been possible if the bank had to find, train and deploy more people in the collections department.

SPDB Credit Card Center team continues to test new ideas and contact strategies using a champion / challenger methodology, which promotes successful “challenger” strategies that outperform the current “champions”. FICO Customer Communication Service therefore plays an important role in providing a closed loop for collection optimisation.

Previous to the FICO solution, SPDB was relying on outbound phone calls only. They now have a multi-channel customer engagement system in place for collections. This change helped keep the collection rates high through a clever and systematic system that allows the collections team to follow up with customers at the right time, using the right channel and with the right message.

Joy Macknight, deputy editor of The Banker, one of this year’s judges for the FICO Decisions Awards, said, “I gave SPDB top marks because of their customer-centric success. They are achieving great results by taking a holistic approach to risk management across originations and collections.”

“SPDB has harnessed analytic technologies to reduce their overall risk, greatly increase the proportion of automatic originations, increase approval rates and scale their collections,” said Sandy Wang. “They have skillfully created a data-driven and comprehensive origination optimisation strategy, using advanced decision science technologies and cutting-edge modelling experience from FICO. It has been a fruitful partnership and a project that has yielded significant results.”

Bike business on track for success thanks to a specialist business loan

A cycle shop owner is taking his business up a gear after a £227,000 cash injection from specialist lender Together.

Jon Dean, who owns CycleStreet in Layerthorpe, York, struck the finance deal to repay a current commercial mortgage with a high-street bank – saving him thousands of pounds in interest charges a month.

It allowed him to pay off the original commercial mortgage he held with his bank and re-pay a number of high-interest business loans he’d taken out while setting up his CycleStreet shop.

The keen mountain biker, who set up the bicycle sales and repair shop eight years ago and also owns a property management company, said the re-financing through Together will safeguard its future – and kick start business growth.

Mr Dean said: “I’d struggled to get the loan I needed from a mainstream bank, because of the way my two companies are structured, and I was beginning to feel it wasn’t going to be possible.

“However, I was introduced to Together who agreed a finance package that meant we could clear our existing mortgage with the bank and improve our cash flow. We’re now ten per cent up on our business forecasts and looking to build even further in the long term, so everything’s heading in the right direction.”

The deal was introduced by commercial finance expert Charlotte Davison from BTG Advisory, a division of Begbies Traynor Group plc, which helps Yorkshire businesses find alternative funding for expansion, working capital or new equipment.

After careful consideration of his situation, Together agreed to provide the finance for Bitpoint Ltd, Mr Dean’s property company, with the 15-year loan secured against the bike shop premises. It will be used to consolidate and expand the CycleStreet business.

Barry Dillon, regional development director for Yorkshire at Together, said: “This was a particularly complicated case which involved re-financing the customer’s original loan away from the high street bank to free up working capital for Mr Dean to take his business to the next stage.

“We were pleased to provide the loan after visiting CycleStreet, and seeing what a popular business it is with the cycling-mad public in York, North and East Yorkshire. It will save him thousands in the short-term and put the business on a firm footing, allowing for expansion in the future.”

Charlotte Davison of BTG Advisory, based in Sheffield, said: “Having reviewed CycleStreet’s situation, we could immediately see that the high interest loans it had taken out were having a negative impact on day-to-day working capital. By joining forces with Together, with whom we enjoy a strong relationship, we were able to restructure the firm’s finances, significantly reducing its monthly outgoings. This long-established and well respected York business is now on a more stable footing to expand and prosper.”

Speed of B2B payments in the Americas declines

The latest results of annual B2B payment practices reserach conducted by global credit insurer Atradius show an increasing level of deterioration in payment practices in the Americas.

  • Average payment duration increased from 61 days in 2017 to 63 days in 2018.
  • On average, 90.3% of respondents frequently experience late payments (the average is highest in Mexico (94.4%) and the U.S. (90.9%).
  • On average 50% of invoices are unpaid by the due date.

David Huey, Atradius President and Regional Director of U.S., Canada and Mexico stated, “It is interesting that in a healthy, growing economy, bad debt continues to plague the B2B markets. To think that 51% of respondents have had a customer suffer bankruptcy or simply close their doors is eye opening. Any business that provides customer credit, domestically or internationally, will benefit from the data reported in the Payment Practices Barometer.”

The average proportion of uncollectable B2B receivables in the Americas declined, though slightly, from 2.1% in 2017 to 1.8% this year. At 2.5%, Brazil is the country with the highest percentage of uncollectable receivables in 2018, mainly because customers filed bankrupty as reported by 54.7% of respondents in Brazil.

The level of intra-regional exports seems to be stable, particularly among the NAFTA countries. This, despite the threat of a protectionist turn by the U.S. and pending the revision of the free trade agreement. Nearly half of the suppliers interviewed in NAFTA countries say that more than 50% of their commercial activities occur within the region, with 16.5% trading exclusively within the current free trade area. Trade with the U.S. either increased or remained stable for 81.5% of the suppliers interviewed in Mexico. In Canada the positive trade picture is even more pronounced with total of 90.3% maintaining the same or better trade levels with the US.