Graeme Wearden 

UK personal insolvencies hit seven-year high; US consumer confidence slumps – business live

Rolling coverage of the latest economic and financial news, as UK insolvencies hit highest level since 2011
  
  

More than 115,000 people were declared insolvent last year, the most in seven years
More than 115,000 people were declared insolvent last year, the most in seven years Photograph: Alamy Stock Photo

Andrew Hunter of Capital Economics points out that US consumer confidence has dropped to an 18-month low today.

Here’s his take:

The fall in the Conference Board consumer confidence index to an 18-month low of 120.2 in January, from 126.6, appears to have been driven by a combination of the government shutdown and the earlier volatility in financial markets. With the shutdown now over and equity prices recovering, there is a good chance that confidence will rebound in February.

The decline was driven exclusively by a deterioration in the expectations index, which dropped to 87.3 from 97.9, with the present situation component little changed. The press release confirmed that the Federal government shutdown, which was still underway during the survey period, and the earlier weakness in equity markets were the main factors weighing on sentiment. With the shutdown now resolved, however, we don’t expect it to have any lasting impact on the economy. Furthermore, the S&P 500 has rebounded by more than 10% from its late-December lows. With labour market conditions still very strong, we wouldn’t be surprise to see confidence pick up again over the next couple of months. The net share of respondents saying that jobs are plentiful, rather than hard to get, remained close to an 18-year high in January. On past form, that is consistent with the unemployment rate falling even lower over the coming months.

Confidence hasn’t been a great guide to spending in recent years so, even if the decline in January is sustained, that wouldn’t in itself mean that consumption growth will soon slow. But with the boost from last year’s tax cuts now fading and the lagged impact of the Fed’s monetary tightening still feeding through, the rapid pace of spending growth seen over the second half of 2018 is unlikely to be sustained.

Greece pulls off bond sale

Over in Greece, the government has made a foray back into the financial markets by auctioning a new five-year bond, reports Helena Smith in Athens.

The bond, the first since Athens exited its bailout programme last August, is critical to testing investor confidence at a time when tapping markets has proven to be more difficult than expected – partly because of market tumult prompted by Italy but mostly because of the country’s debt-to GDP ratio, at 185% the highest in Europe.

Friday’s landmark accord resolving the long-running name row with Macedonia has punched a hole in that uncertainty, analysts say, pushing up bond yields.

The sale was expected to raise between €2bn and €3bn, with a projected yield of 3.75% to 3.875%, sources say. The paper will mature in April 2024.

And the sale appears to have gone better than expected -- Athens has raised €2.5bn, at a yield of just 3.6%. That could reassure investors that Greece can finance itself, rather than needing fresh financial help.

US consumer confidence falls

Just in: The US government shutdown has had a chilling impact on consumer morale.

The consumer confidence index, calculated by America’s Conference Board, has slumped to just 120.2 this month -- down from 126.6 in December.

Economist had expected a much smaller decline, to 124.9.

That’s a pretty clear sign that the month-long deadlock between the White House and Congress, which left hundreds of thousands of Federal workers unpaid, has hurt the economy.

That’s a bad sign for growth. The only hope is that confidence might pick up, now that Trump has blinked and agreed to reopen the government.

Updated

Over in America, motorbike maker Harley Davidson has seen its profits wiped out by Donald Trump’s trade war.

Harley Davidson has reported that earnings per share plunged to $0.00 per share in the last quarter.

Excluding restructuring costs, and the impact of tariffs, and earnings came in at $0.17 per share - analysts expected $0.29.

In the U.S. motorcycle sales fell 10.1% to 20,849 from 23,195. Sales also fell in Europe and Asia-Pacific, helping to pull global sales down by 6.7% to 39,311 (from 42,142).

Harley had previously warned that Europe’s motorbike tariffs - imposed in response to Trump’s tariffs on steel - was hurting sales.

Joanna Elson OBE, chief executive of the Money Advice Trust (the charity that runs National Debtline) is also concerned that people are being lured into IVAs.

“It is a worry to see the number of people going insolvent at its highest level for seven years and this reflects the challenging times many people continue to face.

“With this increase driven in large part by a rise in IVAs (Individual Voluntary Arrangements) our concern is that many people in debt are being led down a route that may not be suitable for their circumstances. The prevalence of online adverts that promote ‘solutions’ to debt involving insolvency procedures may well be a contributing factor to this.

“Insolvency options should not be undertaken lightly and it is crucial that people receive free, impartial debt advice before deciding the best course of action to take.

“I would encourage anyone worried about their finances to seek free and impartial debt advice from a charity-run service like National Debtline.”

Full story: Insolvencies his seven-year high

Here’s my colleague Phillip Inman on the jump in insolvencies:

A jump in personal insolvencies in the fourth quarter of 2018 sent the total number of people going bust last year in England and Wales to the highest level since 2011.

Individual insolvencies rocketed by 34.7% compared with the previous quarter to 34,108, taking the total number for the year up by just over 16% to 115,299, according to figures from the Insolvency Service.

A rise in company insolvencies to 4,725 in the last quarter, spurred by the collapse of hundreds of construction and retail businesses, sent the number of company insolvencies last year to 17,439, the highest level since 2014....

More here:

Here’s another chart from the Insolvency Service, which show how personal insolvencies - as a share of the population - has been rising since 2015.

As you can see, insolvencies are back at a 7-year high, and haven’t returned to their pre-crisis levels.

The Insolvency Service says:

The individual insolvency rate is related to levels of household debt, and economic growth. The current individual insolvency rate remains elevated compared with rates of less than 10 per 10,000 adults before 2004.

In the early-to-mid-2000s, there was a large expansion of credit which coincided with a large increase in the individual insolvency rate.

A quick clarification. The number of personal insolvencies in the UK jumped to 115,299 people last year - not 115,229 as mentioned earlier [there was a small typo in the announcement, which I didn’t spot...]

Mike Cherry, chairman of the Federation of Small Businesses, says Brexit uncertainty is one factors pushing companies into financial difficulties:

“These latest figures show the huge strain that small businesses are currently facing with rising employment costs, unfair business rates as well as significant uncertainty as the UK exits the European Union.

“Both the total number of new company insolvencies as well as underlying total insolvencies have reached their highest levels since 2014, which illustrates the great turbulence that small firms are now up against.

“It’s a great concern to see almost 1,000 self-employed individuals suffered from bankruptcies in Q3 of 2018.

Heads-up. Chancellor Philip Hammond is planning to update us on the nation’s finances on Wednesday 13th March.

TUC official Alex Collinson fears that Britain is sinking into a debt crisis - and wants the government to act:

Updated

Here’s Noble Francis of the Construction Products Association on today’s corporate insolvency stats:

Today’s insolvency figures cover three types of formal insolvency procedures, which people enter when they can’t service their debts.

  • Bankruptcy orders – a form of debt relief available for anyone who is unable to pay their debts. Assets owned will vest in a trustee in bankruptcy who will sell them and distribute the proceeds to creditors. Discharge from debts usually takes place 12 months after the bankruptcy order is granted.
  • Debt relief orders (DROs) – a form of debt relief available to those who have a low income, low assets and less than £20,000 of debt (£15,000 before October 2015). There is no distribution to creditors, and discharge from debts takes place 12 months after the DRO is granted. DROs were introduced in April 2009
  • Individual voluntary arrangements (IVAs) – a voluntary means of repaying creditors some or all of what they are owed. Once approved by 75% or more of creditors, the arrangement is binding on all. IVAs are supervised by licensed Insolvency Practitioners.

The 16% jump in personal insolvencies in 2018 shows that more Britons are in financial distress.

Stuart Frith, President of insolvency and restructuring trade body R3, explains:

Personal insolvency numbers have been rising steadily every year since 2015, and 2018 was no exception. As banks and other lenders have tightened their credit standards in response to the Bank of England’s concerns around consumer over-indebtedness, many people have run out of road.

In previous years, the ‘helicopter money’ provided by PPI refunds, along with generally less stringent lending requirements, helped to paper over the cracks that opened up as a result of a decade of persistently stagnant wage increases, but these avenues look to be closing themselves off. People are having to spend more of their income on housing and transportation, leaving less left over for savings and making budgets more vulnerable to shocks.

Some savings’ pots are perilously thin (or non-existent), Frith adds:

“Savings levels are painfully thin, exposing people to financial upsets. As an illustration of this, recent research from R3 and ComRes found that one in five British adults (20%) would find it somewhat difficult, very difficult or impossible to immediately pay an unexpected bill for an amount as little as £20, without assistance from an external source.

Karen Hendy, partner at City law firm RPC, fears more retailers will fall into insolvency in 2019.

“The retail landscape could get worse before it gets better. A poorly handled Brexit may see even more high-profile casualties in the sector.

Unfortunately, there seems to be very little good news on the horizon for retailers. The National Minimum Wage will rise another 4.9% in April, and Brexit is a drag on consumer confidence.”

Building companies and retailers suffered the brunt of the insolvencies across the UK last year, as this chart shows:

The Insolvency Services adds:

  • The underlying number of company insolvencies increased in 2018 to 16,090, the highest level since 2014
  • All types of company insolvency increased in 2018 compared with 2017 except administrative receivership

Corporate insolvencies are also rising

The number of companies hitting financial trouble have also risen.

Corporate insolvencies jumped by 9.3% in the fourth quarter of 2018 to 4,725 companies.

John Cullen, business recovery partner at accountancy firm, Menzies LLP, fears more businesses will enter insolvency this year.

“The recent dip in consumer confidence is beginning to impact spending behaviour and this is having an effect across the economy. Retailers have been particularly badly affected and many are still saddled by historic rental agreements, which are undermining their profitability. Other sectors of the economy are also affected, among them the construction and hospitality & leisure industries.

“Despite the low rate of unemployment, the current climate of Brexit uncertainty and political instability, is unsettling for consumers, and this is creating exceptionally challenging trading conditions for many businesses.

“Corporate insolvencies are likely to continue to rise in 2019.”

The number of UK personal insolvencies surged in the last three months.

The Insolvency Service reports there were 34,108 individual insolvencies in the fourth quarter of 2018, an increase of 34.8% on Q4.

Again, a surge in individual voluntary arrangements was responsible - they jumped by 60% to a record level of 22,717.

UK personal insolvencies hit seven-year high

Boom! The number of UK individuals falling into insolvency has hit a seven-year high.

In total, 115,299 people became insolvent after failing to repay their debts in 2018, up 16% year on year. That’s the third annual increase in a row and the highest since 2011 (after the great recession).

It’s the latest sign that the cost of living squeeze is forcing some families to the brink.

The increase was mainly driven by a record number of individual voluntary arrangements (IVAs) - a formal agreement between debtor and creditor to repay part of an outstanding debt over a fixed schedule.

The Insolvency Service says the number of IVAs jumped by almost 20% last year, meaning that roughly 1 in 400 adults was declared insolvent in 2018.

Richard Haymes, Head of Financial Difficulties at TDX Group, fears people are signing up to IVAs too lightly.

Research we’ve conducted reveals major misperceptions around the consequences of personal insolvency. Nearly three in ten people don’t realise that entering personal insolvency could affect their access to rental accommodation, over a quarter (26%) of people don’t know it may affect their eligibility for a bank account, and nearly one in five (19%) Brits think it wouldn’t influence their ability to access a mortgage.

“The survey also shows people don’t realise the impact on their access to other everyday services, for example three in five (60%) Brits believe there would be no issues in accessing utility services such as electricity, gas, or TV and broadband services.

“There’s wholesale confusion concerning the consequences of personal insolvency. Entering into an IVA is recorded on your credit report for six years and can make it hard for you to be approved for rental agreements, a mortgage or bank account, as well as other services like utilities. It’s never a decision to be taken lightly.

Updated

UK shares march on, but pound calm

In the City, the FTSE 100 has jumped by almost 80 points this morning to 6825, recovering Monday’s losses.

Russ Mould, investment director at AJ Bell, says:

The latest machinations in the House of Commons over Brexit will take place tonight. With sterling still volatile against this backdrop, the FTSE 100 was on the march, recovering some of the losses seen in recent days to trade more than 1% higher early on.

“The index is being powered by heavyweight tobacco stocks British American Tobacco and Imperial Brands which have relatively little exposure to the UK’s looming exit from the EU.

Sterling is hovering around $1.316, as traders wait to see which - if any - Brexit amendments are passed tonight.

Brexit anxiety hits Hargreaves Lansdown

Investment platform Hargreaves Lansdown has suffered from the recent market volatility, and anxiety over Brexit.

It’s reported a 6% drop in assets under administration since 30 June 2018 to £85.9 billion, and a 24% decline in net new business, even though its client base grew by 45,000 to 1,136,000 active clients.

Hargreaves Lansdown grew into a FTSE 100-listed company by making it easy to invest in ISAs and trade shares through its Vantage service.

CEO Chris Hill says the company is going through difficult times:

“The diversified nature of Hargreaves Lansdown has enabled us to continue growing despite a period of geopolitical uncertainty, market volatility and weak investor confidence.

Hill also warns that Brexit is deterring some clients from investing:

Brexit is on the horizon, and until certainty is reached, it will continue to impact markets and consumer confidence. Financial decision making becomes trickier and clients can become reluctant to invest more in volatile markets and prefer to sit on the side-lines.

Perhaps he should have a word with Peter Hargreaves, company co-founder, who was a big backer of the Leave campaign in 2016.

Perhaps Royal Mail should take some delivery lessons from Domino’s.

The fast food company had its busiest week ever in the run-up to Christmas, shifting a record-breaking 535,000 pizza (!) on Friday 21st December alone.

It also posted a 25% jump in sales on the night of the Strictly Come Dancing final (December 15th), as families shunned the cooker in favour of takeaways and tangos.

David Wild, Domino’s CEO, says:

“I’m pleased with the continued strong performance in the UK and Ireland, where we opened a further 59 stores.

Many families decided to kick off the festive season with a Domino’s, with the Friday before Christmas breaking all records as we sold more than 535,000 pizzas - equivalent to 12 every second.

The UK delivered food market is “vibrant”, Domino’s adds, predicting growth of 8% a year to 2022.

But while the UK sizzles, Domino’s expects to make a £3-£4m loss at its International operations, due to weather problems and “business integration challenges in Norway.”

That’s knocked its shares down 5%.

Updated

Royal Mail: What the experts say

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown, says Royal Mail’s letters business is contracting at a worrying rate:

“The continuing collapse in letter volumes is the big news in these numbers. Royal Mail’s gone out of its way to say that’s down to wider uncertainty, and the introduction of new privacy laws under GDPR, rather an uptick in companies using email rather than paper.

Whatever the cause, we suspect those mailings are gone for good.

Michael Hewson of CMC Markets says investors are unimpressed by Royal Mail’s performance, adding:

Management don’t appear to have a coherent plan to deal with an ever rising cost base at a time when growth prospects remain cloudy.

Royal Mail shares hit record low

Ouch. Shares in Royal Mail have hit a record low after it delivered more bad news to shareholders.

Royal Mail warned that its letters business is declining faster than expected, due to ‘business uncertainty’ and the move away from paper to electronic messages.

Letter volumes have fallen 6% in the last nine months, wiping out the benefits of a 6% jump in parcels volumes.

CEO Rico Back also blamed the UK’s new data protection rules (GDPR) for the drop in letters:

“Due to our letters performance to date, we expect addressed letter volume declines, excluding elections, to be in the range of 7-8% for 2018-19.

While the rate of e-substitution remains in line with our expectations, business uncertainty is impacting letter volumes.

Royal Mail also trimmed its earnings targets for 2018-19. It now expects “group operating profit before transformation costs” of £500-530m, down from £500-£550m announced in last October’s profits warning.

This sent shares down 1% to 255p in early trading, an all-time low. The government sold Royal Mail off at 330p per share in 2013, and they hit 631p last May.

Updated

When they’re nervous, investors have a habit of piling into gold.

So with geopolitical anxiety rising, bullion prices have just hit their highest level in seven months.

One ounce of gold will now cost you $1,307, the highest level since May 2018.

Huawei charges: What the experts says

The criminal charges launched against Huawei could scupper this week’s US-China trade talks, City analysts reckon.

Jasper Lawler of London Capital Group says:

Sentiment was already on shaky ground this week over concerns of global growth. The move by the US justice department accusing Huawei with bank fraud and conspiring to steal trade secrets from US firm T mobile Inc is not helping.

The timing of the move is important. With trade due to start tomorrow, this is a fairly hostile message that the US is sending out. The overriding fear is that this move will negatively impact trade talks, making a deal even less likely.

Konstantinos Anthis, Head of Research at ADSS, adds:

The lack of progress in the US-China trade talks and the potential extradition of Huawei’s CFO from Canada to the US on criminal charges highlight a complex geopolitical landscape.

At the same time, rumours that President Trump will not hesitate shutting down the US government again in February as he tries to get funding for his wall with Mexico create further challenges for the US economy, keeping equity traders on the side-lines.

Introduction: Huawei charges put trade war back in focus

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Hopes of a breakthrough in the US-China trade talks have taken a resounding knock, after American authorities hit technology firm Huawei with a string of criminal charges.

The US Justice Department has charged Huawei of bank fraud, obstruction of justice, and conspiracy to launder money related to allegations that it conspired to violate Iranian sanctions. Chief financial officer Meng Wanzhou has also been charged, and faces extradition to the US.

Meng and Huawei are accused of using a subsidiary, Skycom Technologies, to do business with sanctioned Iran - a breach of the International Emergency Economic Powers Act (IEEPA). US officials believe Huawei committed fraud by lying to banks, thus misrepresenting their relationship with Skycom.

Huawei is also accused of stealing a robotic technology from the US carrier T-Mobile. Acting Attorney General Matthew Whitaker said Huawei had made a “concerted effort” to steal this smartphone-testing system.

The company denies the charges, pointing that that it has already reached a civil settlement with T-Mobile over ‘Tippy’.

FBI director Christopher Wray said the charges followed years of investigative work, and suggested that Huawei shouldn’t be welcome in the US at all.

Wray declared:

“These cases make clear that, as a country, we must consider carefully the risk that companies like Huawei pose if we allow them into our telecommunications infrastructure. The FBI does not—and will not—tolerate businesses that violate our laws, obstruct our justice, and jeopardize our national security.”

China has swiftly hit back, calling the charges unfair and immoral.

The move comes just days before a Chinese delegation led by Vice Premier Liu He arrived in Washington for crucial trade talks. Unless an agreement is reached in the next month, Donald Trump will hike the tariff on thousands of Chinese products from 10% to 25%, potentially hurting trade and adding to the economic slowdown.

Also coming up today

The pound could be volatile tonight, as MPs vote on a series of Brexit amendments - including Graham Brady’s plan to remove the Irish backstop, and Yvette Cooper’s move to rule out No-Deal and force a delay to Brexit.

Parliament’s Treasury committee will also put Brexit under the microscope; they’ll hear from John Glen MP, Economic Secretary to the Treasury, Andrew Bailey, CEO of the Financial Conduct Authority, and deputy Bank of England governor Sam Woods this morning.

Plus, new US housing and consumer data will show how America’s economy is faring in the face of the trade war.

The agenda

  • 9.15am GMT: Treasury committee hearing on the UK’s economic relationship with the EU
  • 2pm GMT: Case-Shiller index of US house prices for November
  • 3pm GMT: US consumer confidence for January
 

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