Rents fell for a second successive month in December, according to the latest Buy-to-Let Index from LSL Property Services plc, which owns the UK’s largest lettings agent network, including national chains Your Move and Reeds Rains.

In December, the average rent in England and Wales fell by 0.8% to £711 per month. Despite the monthly fall, annual rental inflation increased to 4% from 3.5% in November, as tenant demand in December surpassed that of a year ago.

On a monthly basis, rents fell in seven regions, with the biggest declines in the South East and North East, where they fell by 1.9% and 1.4% respectively. Rents in London fell for the first time since December 2010, with rents falling by 0.9%, compared to a drop of 2.3% a year ago.

In the last 12 months rents have risen in all but two regions. The fastest rising rents on an annual basis were in London where rents rose by 5.6%. The next biggest increases were in the East and South East of England, with rents rising 5% in both regions. Rents fell in the North East and South West by 1.3% and 1.2% respectively.

Despite the average rent in England and Wales falling by 0.8% December, the seasonal decrease was less than the 1.2% monthly fall recorded December 2010.

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains comments: “The seasonal relief continued for tenants as rents dipped again in December, but the drop-off was much smaller than a year ago. The rental market was sheltered from the full impact of the seasonal lull by the strength of underlying tenant demand as many prospective renters took the opportunity to move in the run-up to Christmas at a time when the market is traditionally less competitive.

“With the mortgage market facing challenges from the eurozone crisis and the sluggish wider economy, credit conditions are unlikely to ease significantly in the coming year. As a result, the number of first-time buyers able to secure finance isn’t about to rocket up, and demand for the limited supply of rental accommodation will continue to rise. It won’t be long before rents will resume their upward march.”

Tenant Arrears Deteriorate

Tenant finances deteriorated in December, with 10.7% of all rent late or unpaid at the end of the month, compared to 9.3% in November. Nevertheless, the seasonal increase was much lower than December 2010, when rental arrears rose to 11.7%. In December, unpaid rent totalled £300m, a 12% increase from the £263m unpaid or late in November.

Newnes concludes: “The festive season tends to crank up the pressure on tenants’ finances, with spending over the holiday season often exacerbating existing financial difficulties. Despite this, overall rental arrears in December were at a lower level than a year ago. While there are indications that a small minority of tenants are facing increasing arrears, the overall tenant population has coped reasonably well with the impact of higher rents and soaring inflation.

The influx of financially sound, frustrated buyers has helped prevent higher general arrears so far, but as the labour market weakens and wage growth remains lethargic, we expect a steady rise in arrears as the year progresses.”

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Political uncertainty in the Eurozone has paralysed the UK recovery, according to the latest quarterly forecast from the Ernst & Young ITEM Club, with UK GDP expected to flatline for the rest of year.

ITEM Club’s winter forecast says that deteriorating levels of confidence will see business investment stagnate in 2012, whilst export prospects have already slowed. According to the report, the UK is probably already in a technical recession and will struggle to reach positive growth until 2013.

The report forecasts UK GDP of 0.2% this year before increasing to 1.8% in 2013 and 2.8% in 2014.

UK back in recession
Professor Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club explains: “Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement. But it’s not going to be a repeat of 2009; we are not going to see a serious double dip.

“This time around, UK PLCs have strong balance sheets and have built up large cash stockpiles, which will provide a useful insurance policy if the situation deteriorates further. Business spending has already been cut back heavily. However, with business confidence faltering, investment and recruitment are likely to remain on hold until stability returns.”

ITEM Club forecasts that investment fell by 2.6% in 2011 and will grow by just 0.4% in 2012.

Unemployment will approach 3 million
The labour market outlook also remains bleak. According to the report, sluggish levels of private sector recruitment will be unable to offset job losses in the public sector. ITEM says that unemployment will be just shy of the 3 million mark in the first half of 2013, representing 9.3% of the UK’s labour force.

Spencer comments: “We are expecting to see another 300,000 unemployed this year, which is relatively modest when compared to the increase in 2009, but this is adding to an already lengthy dole queue.

“The only piece of good news for UK households is that inflation should fall back below 2% this year, as commodity prices weaken and the VAT rise drops out of the calculation. We will have a bit of extra cash in our pockets, but concerns over rising unemployment are unlikely to see consumers rushing back out onto the high street.”

ITEM says that disposable incomes will decline by 0.8% this year, whilst consumer spending will remain flat before picking up by 1.4% in 2013 as employment prospects brighten and inflation remains low.

Exports still hold the key to UK’s recovery
According to the report, the UK’s recovery is still heavily dependent on exports. Exports accounted for most of last year’s growth, adding 0.9 percentage points to GDP in 2011, but with weakening demand from the Eurozone and concerns over China’s ability to soft land their economy, the outlook for 2012 looks much less promising.

ITEM is predicting export growth of 3% this year, which will add 0.4 percentage points to UK GDP. But this will be dependent on the UK’s ability to continue to re-orient exports away from the Eurozone to the rapid growth markets, such as India and Indonesia.

Martin Cook, commercial managing partner at Ernst & Young, comments: “Many UK companies rely heavily on their Eurozone trading partners but this is no time for ‘business as usual’; they will need to adapt, assess their long term business models and be prepared to tap into new markets.

“Corporates need to start planning for different scenarios, as no-one really knows how the Eurozone crisis is going to play out. Doing nothing is simply not an option.”

But significant risks remain
Spencer concludes: “There’s a lot hanging in the balance. Our forecast is based on the assumption that the Euro remains intact and that policymakers are able to contain the Eurozone crisis. However, the longer the uncertainty continues, the more debilitating the impact will be on the UK’s economic prospects.”

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New Cebr forecasts released today indicate that the UK economy is probably already in recession with negative GDP growth in Q4 2011 and Q1 2012.

Cebr has also revised down its forecast for growth for 2012 as a whole from 0.7% growth as predicted last October to a decline of 0.4% with a risk of a more serious decline of 1.1% if developments in the Euro zone are especially negative.

Cebr also forecasts sluggish growth in the medium term, Growth in 2013 is forecast to be minimal at 0.9% and from 2014 onwards at around 1% per annum.

Inflation is forecast to fall to 1.7% by Q4 2012 and to remain around 2% thereafter despite rising commodity prices and a weak pound.

Unemployment is forecast to rise sharply to about 3 million in 18 months time as companies batten down the hatches for the long term and revise their medium expectations of labour requirements.

Base rates are expected to remain at 0.5% to 2016, while increased quantitative easing to a total of £400 billion is expected for 2012 with the possibility of more in future years.

Scott Corfe, Cebr Senior Economist and main author of the report comments: ”We see a weak outlook for sterling. But of course the euro and the dollar are also likely to be weak, so the main weakening is likely to be against the Asian currencies and the commodity based currencies. We see the Western currencies falling by about 30% vs the renminbi to 2016 and by 15-40% against commodity based currencies.”

Douglas McWilliams, one of the report’s authors and Chief Executive of Cebr, added: “We take no pleasure in outlining such a bleak forecast. But the world is going through a fundamental change where previously poor economies are industrialising fast. This is good news for them, but because of the limits imposed by shortages of energy, minerals and food, some of their growth is at our expense.

“This is not to say that if we break off trading with them we will be better off. On the contrary, a strategy of disengagement with the rest of the world would make matters very much worse.

“The Chancellor will not reduce the deficit as quickly as he thinks since tax revenues will be depressed by slow growth. But this does not make the case for giving up on austerity. Indeed our forecast, which shows that the UK debt to GDP ratio will go above 90%, means that he will at the minimum have to keep the austerity programme going for much longer than he originally thought.”

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The Bank of England should be bold and increase the Quantitative Easing (QE) programme by a further £50 billion, the British Chambers of Commerce (BCC) has claimed.

The call comes after the Bank’s Monetary Policy Committee voted for no change in fiscal policy this week, keeping interest rates at their record low of 0.5 per cent, and QE at £275 billion.

QE was last increased by £75 billion in October, but the Bank should be more generous with the available QE allowance in order to avoid a setback and to boost growth, says David Kern, chief economist at the BCC.

“Since the challenges facing the UK economy will increase in the first quarter of 2012, a further £50bn increase in QE to £325bn would be welcomed by hard-pressed businesses. An immediate increase in QE would strengthen confidence and help to contain sterling rises against the euro, at a time when we must maintain the competitiveness of our exports. Sterling has risen by some six per cent against the euro in the last three months and this puts unwelcome pressure on British exporters,” Mr Kern said.

Any increase should be coupled with effective credit easing measures, he adds: “But QE will only achieve its full potential to support growth if it is supplemented by effective measures aimed at improving the flow of credit to viable businesses. The government must swiftly implement its promised credit easing measures, and the Bank of England should play its full part in supporting such an initiative.”

But economists believe that markets may not be able to digest more QE at this stage, particularly because the last round is not due to finish until February. Howard Archer, chief economist at Global Insight said:

“There is belief within the MPC that the markets may have difficulty digesting extra QE at this stage. Holding back on more QE also gives the MPC more time to judge whether underlying inflationary pressures are easing, which some committee members believe is important for the Bank of England’s credibility before it goes further down the QE road.”

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The latest PwC analysis into insolvency numbers suggests that the UK property sector had a better last quarter of the year, but there are still challenges ahead.

A total of 123 UK real estate companies became insolvent in the last quarter of 2011. This represents a 6% decrease on the previous quarter, when 131 companies entered insolvency. It also shows a 6% fall in comparison with the same quarter of 2011, when 131 companies became insolvent.

On a rolling 12-month basis, the numbers show a 3.7% decrease in insolvencies: there were 596 in the real estate sector in the year to 2010, compared with 574 in the year to December 2011.

Mark Batten, partner in charge of the real estate restructuring practice at PwC, said:

“The reduction in insolvencies is welcome and suggests an improved outlook, at least in some parts of the real estate sector. There are some signs that the effects of the downturn are easing and 2012 looks to be a better year.

“Lenders are managing businesses carefully to find solutions to help them stay afloat. By and large they have now have a good handle on their portfolios and are looking to work through problems with their borrowers, or to sell on their exposures (eg by way of loan portfolio disposal) but really only resorting to insolvency as a last resort.

“The real estate sector is, however, not out of the woods and funding (eg of acquisitions) remains a key challenge with a number of institutions having withdrawn from the market. Notwithstanding this, the prime property market has remained pretty resilient, with transactions holding up; the secondary and tertiary markets remain challenged. This is the case for both residential and commercial sectors.”

Nationally, the worst affected sectors continue to include construction (656 companies), manufacturing (394), retail (447) and hospitality & leisure (375).

Across the UK…

PwC’s analysis shows that London continues to have the highest number of insolvencies with 941, and compared to the same quarter in 2010, shows an 8% increase in volume.

The East Midlands had the biggest increase in insolvencies compared to the same quarter in 2010 with 204 insolvencies in the fourth quarter of 2011 compared with161 in the same quarter of 2010, a 27% increase

The most improvement has been recorded in the South East where the number of insolvencies has dropped by 21% since the last quarter.

PwC’s analysis shows that London continues to have the highest number of insolvencies with 941, and compared to the same quarter in 2010, shows an 8% increase in volume. The East Midlands had the biggest increase in insolvencies compared to the same quarter in 2010 with 204 insolvencies in the fourth quarter of 2011 compared with161 in the same quarter of 2010, a 27% increase The most improvement has been recorded in the South East where the number of insolvencies has dropped by 21% since the last quarter.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

A new report has revealed that households in the North East and South West are set to face the biggest New Year debt hangovers, with Sunderland, Truro and Plymouth topping the list of 20 postcode locations in the UK most likely to have overspent this Christmas. On average, people in these 20 areas devoted £612 to the festive season, equating to over 100% of their disposable income. DEMSA member EuroDebt Financial Services, the leading debt solutions provider offering face to face advice is warning that this generosity may come at a heavy cost.

The analysis is based on the proportion of discretionary income households were prepared to commit to spending on the festive season. With all locations in the top 20 spending from 101% to 149% of their discretionary income on Christmas, compared to just 30% in the likes of Kingston Upon Thames and Slough, many households in the North East and South West are now facing the stark reality of pushing budgets beyond their limits.

Vance Parsons, Director for EuroDebt says: “It is deeply ironic that some of the most generous households in the UK are in the areas with below average household incomes. Clearly many of these families will have saved for Christmas, but there will also be a good proportion who are now finding themselves with a New Year debt hangover.

“Times are already very tough for many families given the rise in day to day living costs, job losses and benefit cuts. The debt from Christmas will add further pressure to already stretched finances. The temptation is to use credit cards, overdrafts and loans to keep your head above water, but sadly this can often lead to a spiral of increasing debt.

“The key to dealing with debt is to take control at the earliest opportunity and seek help from a professional debt adviser. A DEMSA member, such as EuroDebt will not only help prioritise payments but will liaise directly with lenders to try and freeze interest and reduce unsecured repayment amounts to a level that is affordable to try and avoid the situation becoming worse. A debt solutions adviser will also help those in debt to find any benefits or grants to which they may be entitled. As with all debts it is better to deal with it rather than allow it to get worse and worse. Anyone in financial difficulty who is struggling to manage their finances themselves should seek professional assistance as soon as possible.”

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The Forum of Private Business is warning firms to pay their tax bills on time or face large fines, amid criticisms that HMRC’s paperwork spot checks regime is targeting them at the expense of large companies.

The Forum has written to David Gauke, the Exchequer Secretary to the Treasury, to complain about HMRC’s ‘harassment and mistreatment’ of small businesses, including imposing steep fines for even slight delays in tax bill payments as well as records errors or omissions, while at the same time agreeing ‘sweetheart deals’ with some of the UK’s largest companies.

Recently the Public Accounts Committee estimated that unpaid taxes from big businesses could amount to more than £25 billion, prompting the Prime Minister, David Cameron, to pledge action on tax avoidance.

However, in September 2011, following a pilot exercise in which just 12% of firms displayed ‘seriously inadequate’ paperwork, HMRC extended its small business records checks project, meaning 20,000 firms are in line for visits from the taxman in 2012-13.

In addition to facing potential fines of up to £3,000 for records deemed inadequate, firms are being forced to negotiate ever more costly red tape at a time the Government is pledging to reduce bureaucracy.

The not-for-profit Forum’s latest ‘cost of compliance’ Referendum survey, carried out in July 2011, showed tax administration is now the main regulatory burden for small business owners, leaving them with a bill of £5.1 billion per year.

While HMRC’s SME strategy covering 2012-13 and 2014-15 warns of an increase in ‘potential rule breakers’ – estimating 28% of SMEs could be found to have poor records – it recognises that 88% of business tax red tape falls on SMEs.

The Forum is arguing HMRC’s clampdown flies in the face of the Government’s plans to reform small business regulation in order to free firms to act as a catalyst for economic growth.

The pilot record checks scheme showed 44% of small firms experience problems with record keeping. The Forum believes these struggling businesses, which are facing up to extremely difficult trading conditions yet are expected to create jobs and drive growth, should be offered better advice, guidance and support rather than threatened with steep fines, which are also being imposed on small firms forced to pay their tax bills late as a result of cash flow difficulties.

The Forum’s Chief Executive, Phil Orford, said:

“Small businesses want to keep proper records but struggle with the significant administrative barriers that exist in the UK. They also want to pay their tax bills on time but the reality is that many firms are struggling with cash flow in extremely tough economic conditions – yet HMRC is being completely inflexible.

“Entrepreneurs are crying out for a better tax regime that supports their ambitions and is conducive to growth, not one that provides constant hurdles to overcome and punishes them disproportionately.

“Operating such a strict, punitive small business records checks regime while effectively allowing large companies to do as they please is completely unfair.

“Given that the project is creating so much additional red tape, the Government is in danger of seriously undermining its own deregulatory agenda and damaging small firms, particularly in the present economic climate.”

Mr Orford warned business owners to be prepared and, wherever possible, proactive.

“Obviously entrepreneurs will want to make sure they are not caught out and hit in the pocket at a time they can least afford it, but it is advisable to try to focus on creating business intelligence that works for you, that you can use to your benefit – for example in securing finance – rather than just keeping records for the tax man because you have to,” he said.

Firms are expected to keep records going back at least six years. Information including invoices, bank statements, receipts and cheque stubs will have to be supported by up-to-date accounts books and detailed analysis.

Many entrepreneurs will be dismayed that HMRC is taking a tougher approach to small businesses over administrative issues when it appears to have so many of its own.

The Forum’s submission to the Treasury sub-committee inquiry into ‘the administration and effectiveness of HMRC’ identified numerous weaknesses in the organisation’s service.

Small businesses believe HMRC’s administration of the UK’s tax system is slow and inefficient, with many online systems deemed too complicated.

The Forum has called for reforms to PAYE, the speed of HMRC’s internal procedures and the treatment of customers. In addition, as part of its headline Get Britain Trading campaign, the organisation wants a major root-and-branch simplification of the tax system to make it easier for small businesses to negotiate their tax responsibilities – which HMRC says is its ‘main aim’.

The sub-committee’s report identified serious concerns in a number of areas, including:

Unacceptable difficulties contacting HMRC by phone during peak periods;

Endemic delays in responding to post;

An increasing focus on online communication that may exclude those without reliable internet access.

Forum member Geoffrey Rogers, of Geoffrey Rogers Chartered Accountants and Tax Consultants in Plymouth, argued that small firms want to comply with their tax requirements but are not being given enough support.

“It’s typical that HMRC is going to fine small businesses for not keeping ‘proper records’ when it does not offer any real definition of what this means. Without clarification, and certainly without better education, in many cases, fining small businesses for poor record keeping would be like punishing a child with learning difficulties for poor reading.

“Once again we are looking at the big stick being favoured instead of the carrot, which is, I’m afraid, typical of HMRC’s current approach.”

HMRC said it intends to review the records checks project but would continue with a ‘limited number’ of pilot checks, with the results to be evaluated as part of the review.

For more information about how to keep better records business owners should see the Forum’s hot tips by going to http://www.fpb.org/hottips/778/Is_your_business_prepared_for_HMRC_business_records_checks?.htm

Free tax and PAYE tools can be accessed
by going to http://www.fpb.org/hottips/688/Free_tax_and_PAYE_tools_for_small_businesses.htm

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk) and the full original article can be found by clicking here.

Bank of England data released this morning showed total net lending to individuals rose by £1.0 billion in November compared with October. The figure is in line with the six-month average and also confirms that mortgage lending remains depressed.

Total lending secured on dwellings (i.e. mortgage approvals) rose by £0.6 billion over the month to November, which is below the six-month average of £0.7 billion. The number of mortgage approvals over the month totalled 52,854, which is only slightly higher than the six-month average of 50,266. The data also shows that value of a typical mortgage has fallen marginally over the month which indicates downward pressure on house prices in Q4 2011. In light of the rising costs of living and weak employment figures witnessed during the last quarter of 2011, it makes sense that house price growth had suffered during this period as buyer confidence has been tested. Nevertheless, our forecasts pencil a 1.6% annual rise in house prices this year, as price growth is propped up constrained housing supply, despite the presence of a beleaguered mortgage market. Indeed, the latest housebuilding figures show that 23,410 housing starts were approved, in the three months to September 2011 – 1% lower than in the three months to June and 50% below the December 2005 peak.

Growth in consumer credit (mainly credit card lending) has waned in recent months as households have reined in discretionary spending. The rise in consumer credit was £0.4 billion over the month to November. Taking into account the weak Christmas sales, we expect total consumer credit to have grown by only £1.0 billion in Q4 2011 compared to £1.3 billion in Q3 2011.

We expect that retailers will cut their prices in January after a poor Christmas trading period. This is likely to support retail sales volumes in the immediate future and prop up demand for consumer credit. However, looking further ahead into 2012, demand for lending will be tested by a knockback in consumer confidence as unemployment is forecast to rise and the public sector job cuts start to bite

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The new CEE Top 500 companies ranking, published by Coface, indicates that the year 2010 was marked by a return to profitability and a significant growth in turnover, reaching 20% year on year. Polish, Hungarian and Ukrainian companies led the way, accounting for 60% of all companies included in the ranking.
These Top 500 corporate results also reflect the prevalent economic development trends across the 13 countries studied, touched in different ways by the effects of the 2009 global recession. Poland, which is at the top of the ranking, is the only country in the region showing a positive growth in 2009 (1.7%). On the contrary, the Baltic nations, which were hit hard by the crisis and experienced a rebound much later in 2011, find themselves at the bottom of the 2010 list.

Turnover and profits on the rise, but recruiting is sluggish

After a drop in their turnover of nearly 16% recorded in 2009, the major players in Central and Eastern European countries experienced a boost in business activity during 2010. Their turnover jumped nearly 20%, reaching an aggregate €545 billion, while net profits rose by 12.6% to a total amount of €22 billion.

Turnover figures increased in particular in the metals industry, as well as in mining, manufacturing, wholesaling and the oil and gas industry, which is the most heavily represented sector in this ranking. The number of companies affiliated with the automobile industry doubled over the year.

Another notable trend compared to 2009: in line with the soar in unemployment throughout Central and Eastern Europe, the Top 500 companies trimmed their payroll numbers by 10% in 2010.

The winners: Poland, Hungary, Ukraine

Poland and Hungary successfully defended their leading positions. With 160 companies, or 32%, of the Top 500 list, Poland came in 1st place and matched its 2008 result. Polish firms showed a 40% rise in profits and continued recruiting additional staff. Despite being hit by a strong recession in 2009 and only generating modest growth of 1.2%, not to mention the highest payment incidents rate in the zone (at 19%) in 2010, Hungary held onto 2nd position, with 74 companies. For the first time, Ukraine, with 66 entries among the top 500, climbed into 3rd place.

At 4th place was Romania, with 50 companies, followed by the Czech Republic with 37 and Slovakia with 28. As in 2009, Estonia, with only 1 firm making the ranking, came in last place.

2011-12: Recovery from the crisis compromised by deteriorating Euro zone conditions

Central and Eastern Europe, the region most heavily affected by the global downturn, showed a laborious recovery during 2010-2011. Growth in business activity, which inched up to 2% in 2010 and has been estimated at 2.8% in 2011, remains well below its pre-crisis levels (annual 5.4% over the period 2003-2008). This recovery has in fact been hampered due to the deleveraging steps undertaken by both corporations and households, which had become heavily indebted in currencies. Moreover, household consumption has suffered due to the depressed job market and sizeable wage cuts compared to pre-crisis levels.

The -0.1% recession expected in 2012 for the Euro zone should further hinder the recovery in Central Europe, where the growth rate should fall to 1.4%. Central Europe will be affected via both international trade and financial channels. Countries with very open systems like Hungary, the Czech Republic, Slovakia and Slovenia will be most heavily exposed to a contraction in Euro zone demand. In addition, companies will face more restricted access to credit, against a backdrop of weakened banking systems. As opposed to their 2009-10 reactions, the head offices in Western and Southern Europe, which hold up to 80% of all Central European bank assets, might not renew their lines of credit to subsidiaries as extensively in 2012. Companies in Romania, Bulgaria, Hungary and the Baltic countries may be most severely affected by this phenomenon.

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