uk news > IN BRIEF
RESPONSIBLE BUT POWERLESS It seems to me that Mervyn King should ask to be relieved of his duty to keep inflation within a specified target rate, for reasons that are blindingly obvious. No, not because he has failed for many years now to keep inflation within targets. No, the obvious reason is because he has no control over many of the factors that cause inflation to rise or fall, world commodity prices for example, or domestic interest rates, which are decided by the MPC. It all works fine when the factors affecting inflation are working to keep it below 2 percent, then the Bank of England gets a pat on the head for its prudent and skilful navigation in the choppy seas of the world’s economy, and everyone says thank goodness for the guvnor. But what happens when inflation goes over the guvnor’s target rate? What happens is that the guvnor has to write a letter to the Rt Hon, to explain. The explanation this quarter goes like this: It’s not my fault, but the fault of rising commodity prices (i.e. greedy foreigners), the effects of increased VAT (caused by the Rt Hon, and magnified by Gordon Brown’s cut in VAT, and weak sterling in 2007 and 2008. So it really does look like there’s nothing the guvnor can do about it, in which case, can he please be freed of the responsibility? No, he can’t. Why not? Because nobody else wants it.
NEW ACCOUNTING RULES FOR SMES In October 2010 the ASB published proposals to reform financial reporting in the UK and Republic of Ireland. The exposure drafts propose to withdraw all current UK accounting standards and replace them with a three-tier reporting framework, which aims to balance the needs of preparers and users of financial statements. The proposals would require companies that do not have
“public
accountability” to prepare financial statements in accordance with a new single financial reporting standard the “Financial Reporting Standard for Small and Medium-sized Entities” (“FRSME”). As part of its programme to seek views on the proposals, the ASB is interested in engaging with lenders, creditors, and others who use financial statements for those entities that would apply the FRSME. The ASB is planning to hold a roundtable discussion, to be chaired by Roger Marshall, Chairman of the ASB, at its offices on 15 March 2011 between 16.00 and 18.00. If you would like to attend the event please contact Sue Kemp (
s.kemp@
frc-asb.org.uk)
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Final quarter of 2010 sees strong growth in some sectors
010 ended as it began, with poor weather conditions affecting many businesses. But some asset finance sectors returned strong performances in spite of this disruption (see chart 1). The commercial vehicle finance market reported double-digit growth in each month of the final quarter of last year. Overall, new finance provided for commercial vehicles grew in Q4 2010 by 20 percent to almost £1 billion. There was strong growth too in plant and machinery finance reflecting the pick-up in investment intentions reported by the manufacturing sector. In Q4 2010, finance for plant and machinery reached £713 million and was 9 percent higher than in Q4 2009. The business equipment sector, which helps businesses obtain a wide variety of equipment from photocopiers to vending and catering equipment, recorded the strongest performance during the fourth quarter of 2010. New business equipment finance grew by 27 percent to £468 million over this period.
2
Last year saw the level of annual new business stabilise. During the height of the financial crisis and recession, asset finance fell by a third from £29.8 billion in 2008 to £20.1 billion in 2009. In 2010, new business stood at £19.6 billion, which was 2 percent lower than 2009. The broker market strengthened as 2010 progressed. Growth in broker-sourced new business went from 2 percent in the first quarter of 2010 to 32 percent in the final quarter of the year. Consequently, the broker market’s
share of new business (deals up to £20 million) increased from 14.4 percent in 2009 to 15.9 percent in 2010 (see chart 2). Direct finance accounted for 62.0 percent of the market in 2010, up one percentage point on 2009. By contrast, sales finance shrank from 24.6 percent to 22.1 percent of the market over the same period. The value of outstanding business finance contracts fell by 2 percent during the second half of 2010 to end the year at £66.9 billion. The industry arrears rate held steady over this period and at the end of December 2010, 1.9 percent of outstanding balances (excluding high value deals of more than £20 million) were in arrears. The business environment for the asset finance industry in 2011 looks set to be no less challenging than in 2010. The unexpected fall in economic activity in Q4 2010 and fragile consumer confidence has already led to downward revisions to growth forecasts for 2011. Business investment is expected to be a key driver of growth this year, but the strength of its recovery may be limited because of the uncertainty about demand. This is borne out by the results of recent investment intention surveys, which show continued improvement across the board for the manufacturing sector, but give a mixed picture for the service sector.
GERALDINE KILKELLY HEAD OF RESEARCH AND CHIEF ECONOMIST, FLA
DISTRIBUTION OF NEW BUSINESS FOR DEALS OF UP TO £20 MILLION BY CHANNEL
Direct finance 2010 2009 2008 2007 0 20% Broker introduced finance 62 61 62 59 40% 60% Sales finance 22 25 24 27 80% 16 14 14 14 100%
www.leasingworld.co.uk ■ March 2011
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