November 2023 Newsletter: One cheer for lower inflation

November 19, 2023

Two cheers would be a stretch, let alone three. Core inflation remains hard to shift, meaning UK interest rate cuts are some way off.

The only surprise in October’s fall in the Consumer Prices Index was the size of the decline from 6.7% to 4.6%. It was always going to fall because the hike in energy prices seen in October 2022 obviously wasn’t to be repeated. In addition, food price inflation almost flattened last month. Of course, prices aren’t coming down, just rising more slowly than before. Food prices are still 30% higher than two years ago, while gas prices have risen by 60%. The cost of living crisis is still very real and the light at the end of the tunnel remains extremely small.

Consumer spending is therefore set to stay under pressure for the foreseeable future, squeezing revenues for businesses in many sectors and therefore funds available for those enterprises to invest for growth. Core inflation, as measured by most independent economists, is based on a broad prices index, but with volatile items such energy, food, alcohol and tobacco stripped out (still 5.7% in October). It also considers inflation in the services sector (which barely eased to 6.6%). By contrast, inflation in the US is 3.2%; in the Eurozone, 2.9%.

Since the Bank of England is ultimately responsible for interest rate policy, there are few credible points to be scored by the government for ‘cutting inflation’ beyond public sector pay. Growth in pay overall continues to outstrip headline inflation; it’s the result of complex dynamics in the labour market, nonetheless it remains one of the biggest problems faced by UK businesses for the foreseeable future. The sunlit uplands won’t be coming into view any time soon.


Stricken retailers pin hopes on Black Friday

In case any more proof of cash-strapped consumers is needed, British retail sales in October fell to their lowest level since February 2021.  The quantity of goods bought shrank by 0.3% compared with the previous month, according to the Office for National Statistics. A rise of about the same size had been expected. Household spending appears to be weak ahead of the Christmas shopping season, traditionally the busiest for retailers. The year-on-year drop is 2.7%, much larger than the consensus forecast of a 1.5% fall.  Clothing and household goods stores were among the worst hit, blaming reduced footfall and poor weather.

The wider retail sector continues to suffer from deep-rooted problems that were laid bare during Covid have been exacerbated by subsequent events. Higher rents and crippling business rates for physical stores have forced closures among large retail groups and retreats from town centres. They were already struggling to grip structural changes in the sector resulting chiefly from a migration of customers online. Throw in soaring energy costs for good measure and the picture is bleak.



Recent figures from the GMB union calculate that 420,000 retail jobs have been lost since 2010, with 12,000 this year from general store giant Wilko alone. The three-year figure is a hefty 100,000.  The rapid spread of Artificial Intelligence in all industry sectors has clearly raised the prospect of a new factor killing jobs – some analysts estimate a further one in four retail jobs being lost to AI before the end of the decade.

Black Friday and its weekend successor, Cyber Monday, are due from 24 November this year. At the beginning of the month, the vast majority (80%, according to one survey) of UK retailers were expecting the promotion to left their sales significantly in the run-up to Christmas. Early offers and pre-sale access emerging with effect from a week before Black Friday shows the sector’s underlying desperation. Don’t be surprised if discounts remain available right up to the festive season.


Landlords and the housing market

Has the buy-to-let bubble burst, or is a buoyant rental market persuading residential property investors to stay in the game?

Agent Hamptons says that while the share of homes sold by landlords in Great Britain has fallen from 15.7% in 2022 to 14% so far this year, the trend that began in 2021 is set to continue. Hugely increased borrowing costs after 14 consecutive base rate rises isn’t the only turn-off: tax changes on buy-to-let income and changes to house emissions regulations have also piled on the woe for the landlords who may have remortgaged in the last two years; agents estimate that up to 20% of that segment may now be letting at a loss.

Nonetheless, there are signs that landlord confidence has improved in the last quarter. The latest Q3 2023 Landlord Panel report by research house BVA BDRC shows landlords responding positively to an increase in perceived tenant demand. Many anticipate continued increases in rental yield, a stronger performance from their own lettings businesses and capital gains across the portfolio. After five consecutive increases from Q2 2022, the number of landlords who said they were planning to divest some, or all, of their portfolio in the next 12 months has dropped from 37% in Q2 to 28% in Q3. More than 70% of landlords surveyed reported an increase in tenant demand, up by 4% since the last quarter and reaching an all-time high. Only 3% of landlords reported a decrease in tenant demand.

The feared exodus of landlords is clearly good news for the wider accommodation shortage in the UK, but there are still some bumps ahead for investors: last year’s Stamp Duty cuts are time-limited, ending in March 2025. The threshold at the threshold at which Stamp Duty is charged on residential purchases had been raised from £125,000 to £250,000, with the level for first-time buyers also up from £300,000 to £425,000 and to be used on purchases worth up to £625,000. More significant for landlords and second home owners has been halving the Capital Gains Tax annual exemption from £12,300 to £6,000 in 2023-24 and again to £3,000 in 2024/25.  Landlords keeping their portfolios will undoubtedly consider lifting rents to restore margins. However, they have seen dividend allowances cut from £2,000 to £1,000 in 2023 and then to £500 from April 2024. By 2025, anyone receiving dividends above this amount, including many landlords who have incorporated, will pay tax on them at a rate depending on how much other income they receive. One way or another, strong rental demand is by no means a bonanza for those handing over the keys.



A thousand dollars for a kiss and fifty cents for your soul

That’s what Marilyn Monroe said about working in Hollywood – and this year’s separate long strikes by actors and writers have shown that Tinseltown is still a tough place to make a living. Happily, both actions have come to an inevitable end and the show, in theory, goes on. But not necessarily as before, not least in the UK.

Uncertainty over who can work, and who can and can’t cross picket lines, prompted considerable financial instability in an already fragile film sector, as well as squeezing other forms of studio-produced content.  Downstream from writers and actors, related areas of the wider media industry suffered a ripple effect that will be slow to subside. UK workers have struggled to pay rent and some small production businesses have already shut down. Pay aside, actors and writers fear the potential impact of Artificial Intelligence replacing their talents and expertise.

A survey for Bectu, the British union for workers in behind-the-scenes roles in creative industries, says that 80% of its 4,000 members have been affected by the strikes, with three-quarters not working at all during the period.  UK commercial broadcaster ITV has warned that the global content market has been impacted by lower demand from free-to-air broadcasters, reflecting the challenging advertising environment, as well as the US strikes. It expects this year’s action to delay some revenues from 2024 into 2025.

We’re talking about big money in the broader sector: the UK film contributes more than £12bn a year to the domestic economy.  Studio productions are dictated by long, complex schedules, so delays are felt for a long in supporting businesses. The enforced surge in TV watching during Covid underlined the increasing importance and value of ‘content’ – programmes, box sets and movies for both on-demand streaming businesses and terrestrial channels. The virus provided a silver lining for streamers themselves, boosted by captive audiences swelling subscriptions; however, previously booming producers of content were hit hard by the logistical challenges of filming, leaving them unable to deliver projects despite strong demand from studios and TV companies. In many ways, the US strike has put UK participants in Hollywood back to square one.  Other industries facing their own problems might be relieved that there’s no business like show business.


As ever, the Buchler Phillips approach to business challenges is ‘workout, not bail out’. Don’t hesitate to get in touch for an exploratory chat if your business needs help. Addressing the cracks now will, in many cases, avoid the need to start again.

Our helplines below are open for free initial consultations.

Jo Milner                           07990 816904

David Buchler                 07836 777748

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About Buchler Phillips

Buchler Phillips is an independent, UK based corporate recovery and restructuring firm, with an impeccable Mayfair heritage dating back to the 1930s.Led by David Buchler, former Europe and Africa chairman of global consultancy Kroll Inc, our senior team is equally comfortable advising large corporations, Small & Medium Enterprises (SMEs) or individuals. In addition to decades of experience, each of our Partners brings to any given assignment unique independent insight, free from conflicts of interest, that is often sought but rarely found by clients or co-advisors.

The firm is sector-agnostic, but has particularly strong credentials in property; financial services; professional services; leisure and hospitality; retail and consumer; UK sports; airlines and aviation; sanctions expertise; media and entertainment; transport and logistics; manufacturing and engineering; technology and telecoms.

Our activities fall broadly, though by no means exclusively, into financial restructuring, including fraud and forensic investigations; operational restructuring and turnaround; expert witness services and recovery solutions for corporates and individuals. 

This newsletter is published for the purposes of general information only and does not constitute advice. Any action taken by readers upon the information above is entirely at their own risk.

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