Stock Take
Markets began the week analysing comments from Bank of Japan (BoJ) governor, Kazuo Ueda, who said Japan’s economy was progressing towards its inflation target on the back of rising wages and robust profits. Ueda acknowledged the external risks, such as president-elect Trump’s economic policy, but said the BoJ would not wait for all uncertainties to clear before raising interest rates.
Although disappointed by the lack of clear guidance, investors took his comments as a sign that a December rate hike was still on the table. That view was supported by data released on Friday showing that core inflation in October held above the central bank’s 2% target. The BoJ ended its negative interest rate era in March and last raised its short-term policy rate in July, to 0.25%.
An escalation in tensions between Russia and the US over Ukraine dented global risk appetite and saw investors flock to safe-haven assets on Tuesday. President Putin updated Russia’s nuclear doctrine after the US allowed American-made missiles to be fired deep into the country. European stocks hit a three-month low and US Treasury yields retreated sharply, after having been pumped up in the last couple of weeks by Trump’s tariff plans, stickier inflation readings and lowered rate cut expectations.
A rise in UK energy bills saw inflation rise to its highest level in six months in October, jumping to 2.3% from 1.7% in September and showing why the Bank of England (BoE) is having to move cautiously on interest rate cuts. Of concern to households and policymakers alike was that there was an unexpected clean sweep of higher headline, core and services inflation.
BoE governor, Andrew Bailey, dampened expectations of a rate cut next month, saying that a gradual approach to easing was sensible given the unknown impact on inflation of the rise in employer National Insurance contributions.
The BoE forecasts that the Budget measures will see consumer price inflation still at 2.7% by the end of next year and that it will be mid-2027 before it falls below the 2% target; a full year later than the Bank expected in August.
But inflation wasn’t the only piece of disappointing economic data. Pre-Budget fears were cited as the cause of a bigger-than-expected drop in UK retail sales in October. The Office for National Statistics reported that clothing sales were “notably poor”, as the mild weather delayed the purchase of warmer attire.
The scale of the challenge faced by chancellor Rachel Reeves was also underlined by news that the government borrowed more than expected in October. The implementation of the above-inflation pay increases in the public sector, which was one of the new government’s first policy announcements, added 13.5% to staff costs.
Economic growth is critical to the government’s spending ambitions, yet the week ended with news that plans to increase taxes on businesses contributed to the first contraction in UK private sector activity in 13 months. The same report also showed employers cut staffing levels for the second successive month.
Investors were keenly awaiting the third-quarter earnings report from Nvidia, the world’s most valuable company, for clues as to whether the euphoria over artificial intelligence (AI), which has driven much of the markets’ rally this year, could be maintained.
Despite delivering above-estimate revenue and profits, Nvidia’s fourth-quarter growth forecast failed to meet the lofty expectations of investors. Nvidia indicated that revenue growth would slow to around 70% from 94% in the third quarter; a figure that shows demand for the company’s AI chips remained strong and one that suggests the AI tailwind could continue to help drive equities next year.
Global stocks edged higher on Thursday despite Nvidia’s forecast dragging down the technology sector. Tech stocks were also dented by a demand from the US Department of Justice that Alphabet must sell Chrome to end Google’s search monopoly. It’s reckoned that Google accounts for 90% of all online searches globally.
Geopolitical concerns kept markets wary, but didn’t prevent global stocks ending the week in positive territory, as investors mulled over president-elect Trump’s likely policies and their impact on the US economy. One scenario is that his policy ambitions will be moderated to avoid inflation picking up, as unhappiness with high inflation was one of the key reasons he was elected.
Wall Street’s leading indices notched weekly gains, while Europe’s Stoxx 600 snapped four straight weeks of losses. The FTSE 100 had its best week in six months as a weaker pound boosted exporters.
“We think that with economic data remaining upbeat, the Fed will probably deliver the last cut in the mini-cycle for the time being, in either December or January, then signal that rates are on hold for a period,” suggested Mark Dowding of BlueBay Asset Management. “This will conveniently allow Powell and colleagues to assess the actions of Trump’s team before taking additional action, as we progress through 2025.”
Wealth Check
Andrew Shepperd, Co-founder and Director of consultancy Entrepreneurs Hub, says good data is essential when your company is going through a rough patch. “When times are tough, you’ll get peace of mind just knowing where you are. Your data might show that, with some changes, you can make it through in 12 to 18 months and face the challenges with more confidence,” he says.
There could be many things you can do to avoid closure. These include increasing efficiency through automation, cutting non-essential costs, improving credit collection, pushing for better payment terms with customers and suppliers, renegotiating bank loans, reducing supply-chain risks, or selling non-essential assets. If one or two unpaid invoices could tip you into insolvency, consider trade credit insurance, which protects you against non-payments.
Conduct a thorough analysis of profit in each business segment, and make sure cutting back in one segment does not adversely affect another.
Ask yourself tough questions, such as: have you focused too much on pet projects and neglected more profitable areas? Have you kept yourself busy with day-to-day tasks but avoided tackling core threats to profitability? Have you taken on too many low-profit customers and do you need to be more discerning? Maybe you need to focus on improving your customer proposition, and actually invest more in marketing and salespeople?
Face up to these issues, regardless of your emotional attachment to staff or parts of the business. This is where third party advice could help.
“Talk to your accountant and financial planner to get a full picture of your standing,” says Andrew. “Do you have to close, or are there other options? For example, could you sell all or part of your business to a larger firm that could use economies of scale to run it more efficiently and underpin staff employment? Large companies often buy small ones just for ‘team and tech’ – the revenue is so small, it’s inconsequential, but the value of staff and their skills can take years to build, so a larger company may be attracted and, by acquisition, instantly add that skill competency to their business.”
Insolvency happens when your company can’t pay its debts, either because you can’t pay bills so run out of cash, or you have more liabilities than assets.
If you’re planning to bounce back with a new start-up, any new trading name must not imply association with a previous limited company.
Reducing your liabilities at this stage could help you come back stronger. Hopefully, you’re already a limited company, which means the owners’ personal liability for business debts are limited to the amount they invested in the firm. This means you’re not personally responsible for paying the firm’s debts if it closes.
Avoid offering personal guarantees on business loans, as these could make you liable. If you’ve given such guarantees, try to negotiate them out of agreements. Where possible, move family members out of the business, especially if they’re inactive.
Ensure you understand employees’ rights in insolvency, such as around redundancy, and the Protection of Employment (TUPE) rules if selling a going concern.
If making a solvent liquidation, get advice on the tax implications – for example, any remaining profit in the business will be taxable, but you may be eligible for Business Asset Disposal Relief.
Keep good records in all cases.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
In The Picture
“While headline inflation has broadly fallen to the 2% target since the spike in energy prices, core inflation – which excludes volatile items like food and energy – remains close to 3% and wages are growing at around 4%. We expect inflation to remain higher for longer, reinforcing the importance of holding a well-diversified portfolio designed to navigate different economic conditions.”
Hetal Mehta, Head of Economic Research
The Last Word
“Nuclear will play a vital role in our clean energy future. That is why we are working closely with our allies to unleash the potential of cutting-edge nuclear technology. Advanced nuclear technology will help decarbonise industry by providing low-carbon heat and power, supporting new jobs and investment here in the UK.”
Energy Secretary Ed Miliband in response to the new agreement for civil nuclear collaboration signed by UK and US at COP29 in Baku, helping strengthen energy security.
SJP Approved 25/11/2024