Partner Article

Why Uncertainty Shouldn’t Temper Confidence In 2016

Less than one month in and 2016 has already seen its fair share of economic turbulence. £38bn was wiped off the FTSE 100 during its first day of trading, as poor manufacturing data caused further volatility in Chinese markets, whilst uncertainty in the Middle East continues to trouble investors.

Simultaneously, business confidence seems to have taken a knock. Lloyds Bank’s latest Business in Britain report, released this week, shows that UK businesses expect sales, orders and profits to fall over the next six months. The overall score for business confidence is down to 38% from 43% in July and January 2015. While weaker UK demand was identified as the primary threat to business, exporters also cited lower overseas demand – a symptom of the soft global economy, but also exchange rates – as a pressing concern.

Nevertheless, while these reports seem to paint a bleak picture of the UK business landscape going into 2016, there are indications that the challenges being faced can be overcome.

The strength of Sterling against both the Euro and US Dollar – the major concern for exporters at present – is likely to fluctuate to some degree. Sterling has already devalued against the Dollar as the US Federal reserve raised interest rates, with expectations that rates will rise by a further 1.00% over the coming 12 months, and is now trading near its five year low set in April 2015, with room to go lower.

The Euro however, is another question entirely. Sterling remains in the 1.35 – 1.42 trading range first reached in February 2015, not previously seen since 2007, and continues to put pressure on UK competitiveness with our biggest export destination. Relief may come however, as Mario Draghi, President of the Eurozone Central Bank, seeks to push through further monetary easing, although he is faced with reluctance from his ECB colleagues.

Meanwhile, there have been contradictory reports as to the UK’s domestic health. In a survey conducted by the Financial Times, four out of five economists predicted that 2016 would be another good year for UK growth. Martin Ellison, professor of economics at the University of Oxford responded that, “firms are in good shape to invest”, due to buoyancy in domestic demand as real wages rise faster than the consumer price index. Other respondents identified immigration and falling unemployment as further reasons for economic confidence.

While UK growth as a whole has slowed in Q4 2015, certain sectors continue to fair well. According to the Markit/CIPS service sector purchasing managers’ index (PMI), growth in the UK service sector accelerated towards the end of last year. However, where there is sector growth, there is often increased competition, as businesses jostle to take a slice of a lucrative pie. In order to remain competitive in this space, businesses need to invest – and their ability to do this depends on their ability access to finance.

In November 2015, we were able to supply CommuniGator, a leading provider of B2B marketing software and services, with £500,000 of finance, and is now using the proceeds to fund its next stage of growth.

Like many businesses within the services sector, CommuniGator was in good financial health, enabling its management to consider a number of finance options. Nevertheless, their preference for debt over equity funding, and desire to offer security through company assets, meant that UK Bond Network emerged as the ideal fit.

The company’s Executive Director Kevin Byrne said: “We are a privately owned business in a dynamically growing market; there are plenty of opportunities to grow our business but as always, costs will precede income growth. The outcome was excellent. I am sure that there are many, many more privately held businesses out there that would benefit from the fund raising method and style of UK Bond Network.“​

While business success may be helped or hindered by wider economic conditions 2016, it also depends on ambition and taking the long view. Communigator’s recipe is an age-old one: invest to grow.

This was posted in Bdaily's Members' News section by Chris Maule .