Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

Successful business leaders have all the information they need to make good decisions…Do You?

Friday, December 24, 2010

A Merry Christmas and a very prosperous 2011

Our offices will close at lunchtime today and that will be it for 2010 ...another year passes ...the 18th for Insight Associates.

We have had an eventful week with the weather but not as bad as some.

However this was what greeted me when I arrived at the office on Monday morning when it was -12.5c !!It seems our neighbour's water overflow had been running into the gutter and the down pipe froze!!  Icicles everywhere looked very pretty but also very dangerous!

As anyone who has visited our offices will know, access is over a steep narrow railway bridge, which was pretty much impassable in the early part of the week!

Despite all this though the team have done staggeringly well in getting into the office.

If you have not already seen it this years Insight Christmas Card is worth a look, with words by our creative genius Office Manager Shirley Hoy!

May I wish everyone a very Happy Christmas and a very successful new year!


Monday, October 18, 2010

Why are Entreprenuers so hopeless with cash?

An interesting item in this weekends FT from Mike Southon, author of the Beermat Entrepreneur and one of the best business speakers around!

In Mike's words "The main reason for a company failure is their running out of cash, and every financial expert I have met bemoans the entrepreneurs’ reluctance to address the problem earlier in the process, as simple steps could have been taken to avoid later catastrophe" ... this is so true!

Time and time again we get involved with businesses that have a sound underlying proposition, but are facing crisis because they have not managed their cash properly. What is more, it is not just something you do when it is a problem, every business no matter at what stage it is, how big or small, how strong or weak, should always manage it's cash as if it will all run out tomorrow.

Mike goes on to say about why business owners are so bad at cash management ... "This is a combination of the entrepreneurs' over-confidence and their blind faith that something will turn up, like Mr Micawber in David Copperfield. Just as many successful entrepreneurs are dyslexics, many also have a similar blind spot with regard to money".  Yet isn't the main reason why everyone goes into business to make the stuff?

The solution is to have someone constantly focused on it, and accept that the business leader or Entrepreneur is probably never really going to get their head round it. The problem is the best person to do this is often not the "bookkeeper" or an administrator in their spare time. It needs someone who will really take responsibility for it and manage it, not just let it happen!

If you are concerned about the cash in your business (and you should be!), then get in touch and we can send you our Top Tips sheet!

Sunday, October 10, 2010

People say the nicest things!

We recently asked our marketing partners, The Outsourced Marketing Department, to conduct some research on our marketplace and also to seek the views of our clients about the services we provide to them. As ever, research of this nature is really valuable and this was no exception.

You often believe you know and understand what clients think of you especially when you work as closely as we do, but you cannot beat actually asking the question!  The research has given us some very useful insights (excuse the pun!) which will help guide us on how we develop our services and the things which our clients perceive are important.

Another very positive thing to come out of the exercise was the following very pleasing comments:

What our clients say about...trusting us to manage their business’s money

We can safely leave everything to Insight without having to worry. It’s like having in-house financial employees. They make us feel like they’re part of the business.

What our clients say about...our service
They are experts in what they offer. Insight show an interest in the business, and therefore know a lot about it. We feel very comfortable with them. We know they understand the business, and can therefore help when we need it.

What our clients say about...their relationship with Insight

We regard our relationship as excellent, and it is paramount that we should get on well.

What our clients say about...value for money

Insight give added value. We probably couldn’t get the same value from another company.

What our clients say about... trusting us to manage their business’s money

We can safely leave everything to Insight without having to worry.
Please say the nicest things!

Tuesday, September 07, 2010

So who is right?

An interesting article in the Telegraph states that the main UK clearing banks have commissioned an outside body to research companies that have been refused lending!  This in an attempt to prove their case apparently against the Business Secretary Vince Cable and others that they are not at fault for not lending!

There does seem to be an interesting battle going on at the moment. The banks being adamant that they are lending, and small business groups including the Federation of Small Businesses (FSB) saying their members are going under for a lack of bank funding!

Our experience is certainly that the credit criteria of banks has changed, and they do indeed look at proposals much more closely, but then so they should!  They are not in the business of losing money any more than anyone else, and need to be comfortable that the risk is right.

However, we do wonder if a lot of approaches to the banks fail through a lack of proper preparation. More now than ever a business must demonstrate that they have their house in order with good financial management, control and quality information, and then a well thought through Business Plan to support their funding.

Getting this right is critical, and at Insight Associates we have had considerable success over many years in gaining support from lenders for our clients.

Thursday, August 05, 2010

Corporate Directors

An important change in UK Company Law (as a result of the Companies Act 2006) comes into effect from 1 October 2010.

From this date it will no longer be legal for a company to have just a corporate director or directors, it must have at least one "natural person" acting as a director. This also applies even if the company has a natural person as its Company Secretary.

In UK law a company is in effect a legal person just the same as you and I (there are some subtle differences ...but that is not important here!). A company therefore has its own independent identity and is accountable for its actions. As a result it is able to act as director (or Company Secretary) of another company. This important change in the law means that every company must have at least one natural person as a director, and cannot have all of its directors as other company's (or corporates).

If a company is in default of these new provisions it will be subject to fines imposed by Companies House.

Insight Associates acts as Company Secretary to most of its clients and many other companies. If you would like to understand more about the above change, or other important changes brought about by the Companies Act 2006 we would be happy to help.

Tuesday, July 27, 2010

Will your business be impacted by Government cuts?

There has been a huge amount in the media recently about the new UK Government wanting to make very dramatic cuts in spending. It's clearly going to come, and it's clearly going to hurt (some more than others).

However ...have you seriously sat down and considered what impact it may have on your business?

A report published yesterday by Graydon, the credit reference agency, suggests that nearly two thirds of credit professionals believe that business failure rates will rise on the back of the public sector slow down. Yet, it seems businesses are just not monitoring the potential impact on their own operations.

At Insight Associates, we have already seen one client almost fail (it still might) because of reduced Government spending in its sector.

The impact may not be obvious however. It could be like a domino effect ...with difficulties in areas which seem remote from your own business flowing down and causing big issues for your customers, suppliers or business partners.

Earlier this year I heard what seemed like an amazing statistic until you think about it a bit. Apparently, 30% of all new shoes sales in the UK are purchased by the Government!  When you add up all the various services, military, health, police etc. it is perhaps not so surprising. Now think about the businesses that are perhaps in some remote way dependant on that spend without maybe even realising it!

Take a long hard look at your business, your trading relationships and your market. Understand what will happen when Government spending reduces by perhaps up to 40% ..and be prepared. You may be surprised by what impact it could have on you and your business.

Sunday, July 18, 2010

Withdrawal of Bank notes – Did you miss the deadline?

You may have missed the fact that the older style £20 notes with the portrait of Sir Edward Elgar on were withdrawn from circulation on 30th June.

Most banks, building societies and Post Offices will, for a few months, accept the Elgar £20 notes for deposit into accounts and other customer transactions so now is a good time to check those petty cash tins and piggy banks.

We recently came across some of the older version £20 notes with Michael Faraday on them and our local NatWest branch very kindly accepted these too.

If, you are not so lucky with your bank don’t forget you always claim the face value of any notes if you present them directly to The Bank of England.

This can either be done in person or by post (at the sender’s risk) to: Dept NEX, Bank of England, Threadneedle Street, London EC2R 8AH. You can obtain further information from the Bank of England website

Saturday, July 10, 2010

Checking out time for cheques

The Payments Council recently announced that the target closure date for UK cheque clearing is 31st October 2018 heralding the end of centuries of cheque use.

Cheques have been around in various guises since Roman times although the first pre-printed forms printed on cheque paper to prevent fraud were introduced by the Bank of England in 1717.

The final decision on the closure date will be made in 2016 and will depend on a clear consensus across all interested parties.

Although these dates seem a long way off something that you must consider before then is that the use of guaranteed cheques (i.e. presenting a cheque together with the cheque guarantee card which assures the vendor they will be paid up to a certain value such as ₤100) will cease from 30th June 2011.

So now is a good time to think about what your company policy is for accepting cheque payments.

We actively encourage our clients to accept and make BACS payments as it speeds up the accounting process, is more accurate, is economical beneficial and less time consuming than cheques. Alternatives are credit card terminals and of course old fashioned hard cash!

If you would like to discuss any aspect of these changes do get in touch!

Sunday, June 20, 2010

Identity theft and fraud

We all hear a lot about identity theft and related fraud ... but only when it happens to you does it perhaps really have an impact and make you sit up.

We have recently become aware of a scam e-mail that is doing the rounds which does make me feel a little uneasy ... it looks like this:

From: Mr Garry Mumford FCCA, Director
Date: Thu, Jun 17, 2010
Subject: Deceased client

From: Mr Garry Mumford FCCA, Director
Insight Associates ltd.
Insight House Riverside Common Rd
Stansted Mountfitchet Essex. UK.

I have been directed to contact you with regards to ongoing investigations involving a deceased client of Lloyd TSB Private Banking Ltd. The client, who shared the same last name with you, died intestate so it is standard and mandatory that a next of kin be sought who may inherit the estate. Kindly clarify the following:

- Are you aware of any relative of yours whose last known contact address was Brussels, Belgium, with investments of considerable value with Lloyd TSB Private Banking Ltd?

- If you answered yes to the above then can you establish beyond reasonable doubt your eligibility to assume status of next of kin to the deceased?

Understand that we are at this point constrained to share more details of this matter with you. We will need to hear from you urgently and hope you can assist us in bringing this inquiry to a conclusion. Please respond to my private email below as soon as possible to afford us the opportunity to close this investigation. Thank you for accommodating our inquiries.

Yours sincerely,
Garry Mumford FCCA, Director
Insight Associates Ltd.

We have received many phone calls and e-mails about this, including one from Lloyds themselves. Since the e-mails clearly did not originate from us there is not a great deal on the face of it that we can do. We have asked all those we have spoken to to report it themselves.

The e-mail when you look at it closely contains numerous errors in our details and in the English used. The e-mail address is nothing like ours so any responses get routed back to the perpetrator. There also appears to be a number of slight variations in the ones we have seen.

The information they have used is all freely available from our web site and numerous other places across the web.

It somehow makes you feel vulnerable and concerned a bit perhaps about reputational risk ... but other than that you really cannot do much else other than to just get on with life.  I just wish these people would find something better to do with their time!

Monday, June 14, 2010

Common Financial and Accounting Terms Explained – Number 1

This is the first of what will be occasional blog entries explaining various financial and accounting terms that business owners and managers may come across.

Like all technical areas, accountancy and finance has it’s fair share of acronyms and odd terms … but when you understand them they can all help get a better understanding of the financial picture of your business. Which at the end of the day is what it is all about.

So our first term is:


DSO stands for Days Sales Outstanding and is a commonly used measure to understand the amount outstanding as Trade Debtors (amounts owed by customers).

Just looking at the total value of Trade Debtors alone is not a good indicator of the efficiency in collecting the debt or if perhaps there are any trending issues. If you have a good sales month you might expect debtors to rise if your business gives 30 days or more credit. What DSO does is show the value of your debtors as a factor of sales, and therefore it is not influenced by any fluctuations in sales values month by month.

There are commonly two methods of calculating DSO. The simple method is to establish the average daily value of sales (including VAT, as VAT is included in your debtors!) and divide this into the total amount of debtors outstanding. The answer is the average number of days of sales tied up in debtors. If this is then plotted each month the trend in DSO will show if the businesses debtors collections are getting better or worse.

Total Value of Debtors ÷ Average Daily Sales (incl. VAT) = Average Number of Days Sales tied up in Debtors

The more complex method as before but using the most recent months sales first and working back, and therefore getting in effect a more accurate measure than a simple average. However, as DSO is most useful when looking at trends whichever method is used it is consistency which is important.

What might you expect the answer to be? Well that depends a great deal on your agreed credit terms. But as an example lets assume that you give 30 day terms. In reality this often means “30 days current month”, that is to say your customers will pay you 30 days after the end of a month. April sales being paid on 30 May for instance. If your customers paid you bang on the nail on 30 May, then at the end of May you would expect only May’s sales to be outstanding …and therefore your DSO would be 31 days. However, the reality is that payments are likely to arrive during early June …in which case at the end of May you would have both April and May’s sales outstanding and have a DSO of 61 days. Alternatively the answer may be somewhere between the two!

When companies have a member of staff responsible for Credit Control, DSO is a useful measure to judge performance.

Friday, June 11, 2010

The end is nigh for Time to Pay?

We’re all aware that the most pressing priority of the new coalition Government is to deal with the country’s massive deficit and ahead of the June 22nd Emergency Budget speculation is rife about what schemes will be axed to help achieve this.

We at Insight have been singing the praises of the HMRC ‘Time to Pay scheme’ for some time now and many businesses have enjoyed the benefit of deferring tax payments of more than £5bn in total on ‘agreed terms’ rather than facing hefty late payment penalties when they can’t pay. Indeed we have used the scheme through the Business Payment Support Service very successfully for a number of clients.

In a recent survey of SME senior decision makers, 30% said they expect HMRC to withdraw the scheme with a further 31% believing it would continue for existing users only.

With many businesses relying on Time to Pay as a ‘secondary banking facility’ to ease an otherwise difficult cashflow, one thing that is clear is any withdrawal of this service may have serious repercussions which could result in terminal insolvency for many businesses. It is critical that if the scheme is withdrawn or reduced in scope it is done very carefully indeed.

One of our key areas of expertise at Insight is the management and improvement of cash flows and reducing businesses financial risk. Get in touch if we can help in anyway.

Thursday, June 10, 2010

New Web Site ...

Our long overdue face-lifted web site has now gone live!

Check it out at

Like all sites should be it is very much still work in progress and new and revised content will be added over the coming weeks.

Two significant additions are a video introduction and our new business health check. Why not take a look!

Fraud - Don't get caught out!

Ernst & Young have just completed their 11th Global Fraud survey and you may find the results a little unsettling.

The Bribery Act 2010 is a criminal law reform that encompasses modern bribery offences. Under the new Act individual directors and executives are no longer immune from prosecution. Despite this 18% of UK companies have not performed a fraud risk assessment in the last 12 months and 8% have never completed one!

A troubling fact when there has been a 20% increase in significant fraud cases in Europe in the last year.

In addition, it is very common for fraud to increase in troubled times. It makes sense I suppose, as times get tough people (including perhaps your employees or business partners?) get desperate.

To minimise fraud exposure it is essential for businesses to carry out due diligence before taking on any new financial risk, and to be sure that internal processes are robust enough to either prevent it or show it up if it should happen?

The financial systems and controls that Insight Associates implements on behalf of its clients provide good clear audit trails and set in place sound reporting and approval structures to minimise risk and prevent incidents before they occur – minimising risk to both the company and individual directors. These systems and controls have been developed over many years from experience and knowledge in many diverse businesses and situations. So all of our clients benefit from our work.

If you would like to find out more contact us now.

Friday, May 14, 2010

In the face of adversity

It was my honour and privilege to once again be asked to contribute to the Business Hub last Sunday. The Business Hub is a business radio show broadcast every Sunday morning across Cambridgeshire, linked to a web site forum, and presented by my good friends Ian McKendrick and Mark Peters. You can download last weeks program here.

It has only been running for a short while but seems to be going from strength to strength. One of the regular listeners is none other than former BBC TV Dragons Den panelist Doug Richards who is based in Cambridge. Mark and Ian have persuaded Doug to appear this coming Sunday, indeed he is on for the full hour answering listeners questions. If you are interested you can post a question on the forum here.

Anyhow ...back to the subject of this piece!

Mark and Ian asked that I speak about businesses that had perhaps made good of the recent downturn or even had succeeded in the face of adversity.

It was an interesting question as over the past year or two we have seen a number of our clients have difficulties often created through no fault of their own. In some cases this has caused near terminal issues in their business and has needed pretty intensive care as a result. With some we are pretty sure that if it were not for the quality of the management information that we provide for those business, and the close cash management processes we run, they may not have survived.

I drew on two specific examples which really illustrated to my mind the strength and resilience of the management in those companies.

The first is a relatively new client, Variation Limited, run by two very entrepreneurial and dynamic individuals, Graham Williams and Bill Howie. Variation is a diverse business operating in the logistics area, which lost its biggest customer in January when it went into Administration without any real warning. This presented huge challenges not least because of the commitments the business had to deliver on this contract, and some personal liabilities that resulted as well.

Undeterred Graham and Bill were very quick to come to us and over a couple of quite dynamic meetings we were able to work with them, using the extensive management information they now had about their business as a result of our work, to consider alternative solutions. As a result we have protected the other aspects of their business, including a division which is a rather clever and inventive process for delivering significant cost savings to landlords with empty warehouse properties (which in itself is almost counter recessionary!), and enabled them to move on. Indeed when I spoke with Bill on the day I recorded my interview with Mark and Ian he said he could not be busier and was extremely up beat (but then he and Graham always seem to be!!).

The second story concerns a much longer standing client run by a close business associate and friend of many years. This business delivers training through the Government backed training programs. On the face of it a good solid model with a blue chip customer (well just!). However, a huge number of these contracts were just terminated overnight during last year with no warning as part of Government spending cuts. This left businesses like our client high and dry with no work. However, some quick thinking enabled them to look at the skills, knowledge and intellectual property they had in the business and see other opportunities for using this to turn the business around. In just a few short weeks the business has transformed itself and is now profitably delivering its courses to international students coming to the UK to gain specialist training and experience. The company has even achieved one of the highest levels of accreditation with the UK Border Agency for its work.

Both of these stories I feel just show how if you don't let the circumstances knock you back and with some quick thinking it is possible to actually get really very good results out of otherwise seemingly impossible situations.

There can be no doubt though, in both cases, and in many others, these decisions could only have been made as a result of the relevance and quality of the information the businesses had at their disposal through the systems and processes we are operating for them. Without the numbers these stories may have been very different!

So ...coming back to Business Hub. If you are interested in getting involved why not sign up on the website and make a contribution. You never know you too could be on the radio!

Tuesday, May 11, 2010

Applications for HMRC "time to pay" arrangements

It was reported in Accountancy Age, and by our good friends at KSA Group yesterday that HMRC is apparently adopting a hard line with applications to its Business Payment Support Service (BPSS).

This service set up late in 2008 to support struggling businesses during the recessionary times has doubled the number of applications it has rejected in the last quarter over the same period last year. This has lead commentators to suggest that HMRC is taking a hard line and this is all part of their general tightening up.

A Freedom of Information request by Syscap showed that HMRC rejected 11% of applications in the first quarter of 2010 compared to 5.3% in the same period last year.

Our view is perhaps a little different. Certainly we have seen no evidence of a tightening of any criteria by HMRC or of them taking a tough line to get a time to pay arrangement in place. This appears to be as easy as it ever was, with a simple telephone call. Where there is certainly evidence of a hardening approach is when companies default, and here HMRC are coming down very hard and very quickly. However, that is easily averted if a company believes it will have difficulty making a payment by simply getting in touch with HMRC again.

We have completed very successfully many deals for our clients over the past 18 months, some seemingly pushing the limits a bit. None have really seen any resistance.

However perhaps it is our approach to this that is making all the difference. We firmly believe that in seeking a deal from HMRC the company should look upon it in the same way as it would bank borrowing. It should be carefully planned and work should be done to ensure that not only is the deal sufficient (perhaps combined with other strategies) to resolve the businesses short-term cash flow difficulties but that the repayments are affordable. This means that some good solid cash planning should be completed with "what-if" scenarios and realistic assumptions. It is here where we believe we have been very successful in helping our clients, as many would have struggled to put this together properly by themselves.

There is also one other feature which determines the ease of putting a deal in place, and that is the amount that is being deferred. There is no doubt smaller amounts over a relatively short period are easier to deal with and get agreement to. Larger amounts are generally beyond the remit of the BPSS and get referred to local office. Here our experience time and time again shows that there is a huge inconsistency in approach and much more scrutiny applied. Indeed it has recently gone even further with a requirement for an "independent business review" if the amount is over £1m.

If your businesses is struggling with cash flow, please do get in touch for a free no obligation initial chat. There are many strategies available that may be able to ease the burden!

Tuesday, April 27, 2010

Mind your own credit status

Our continuing advice to businesses is to ensure they thoroughly and continually credit check their customers (and major suppliers and partners for that matter!) and monitor their exposure to ensure they are managing their credit risk not just letting it happen. Often the failure of a major customer (or supplier) can be devastating for a business, not only with the resulting bad debt but the loss of future business.

One thing though most business owners often forget to consider is there businesses own credit rating. If their suppliers are doing their due diligence the consequences of a decision based on a poor rating could be disastrous!

It is important therefore to check your own rating regularly with the major agencies and always consider the impact of any information that is published or how your business conducts itself in its market. Filing poor accounts, getting a reputation as a bad payer, and general poor conduct will all serve to work against you in building a good credit status.

One of the constant grips when trying to find out about a potential customer is the lack of information available. The option to file abbreviated accounts at Companies House can be a doubled edged sword. Whilst the desire to be a little secretive about your businesses finances might be understandable, surely disclosure is the price you pay for limited liability? It can also help others better understand you and therefore by being better informed reach the right conclusions (hopefully good ones!).

In recent years the ability to disclose less and less on the public record has become quite marked. The ability to file abbreviated accounts and the huge increases in the audit threshold I do not believe is in the public interest. Less information is available and it is less valuable through potentially lower quality. To add further to this there are now rumblings from the EU that may exempt small firms (the vast majority of businesses!) from filing accounts at all! This really is a ridiculous step and cannot be anyone’s interest.

The reasoning out forward is that it will help business grow by reducing red tape! How absurd is that! All businesses must produce accounts, preferably monthly for internal purposes and annually if for no other reason than to account for Corporation Tax. Where is the saving? The same logic was put forward when abbreviated accounts were introduced, yet full accounts still have to be provided to shareholders and the tax man! The world is going mad.

Saturday, April 24, 2010

Insolvency Practitioners save jobs!!

I saw a news item recently which put rather a different slant on the work of the insolvency profession. It commented on research from ComRes that suggested over 2 million jobs had been saved by Insolvency Practitioners (IP’s) over the past year and nearly 6,000 companies rescued.

Working closely with the Insolvency profession as we do with our turnaround work, we are very aware that IP’s are constantly struggling, as are Turnaround Practitioners, to change the perception of being the Grim Reaper! However, it goes further than that as there is absolutely no doubt that the earlier that a distressed business seeks help the much better the outcome. There are more options available and most of them are much more palatable than those which might still be there when matters are near the bitter end!

If the preverbal British stiff upper lip was allowed to relax would business owners and managers seek external help earlier if things are not going as they would like? I do wonder. Somehow the perception the surrounds asking for help, especially from insolvency and turnaround professionals, needs to change if British businesses are to gain from the significant benefits that can be had from early intervention.

Like many operating in the turnaround and distressed environment we have been surprised by the lack of businesses seeking help. Many have no doubt muddled through with help from schemes such as the Time to Pay arrangements from the HMRC’s Business Payment Support Service (indeed we have used it extensively on behalf of our clients), and the reluctance of banks to foreclose. However, in the long term this is probably not the solution for many. Whilst we may not have seen as many new situations as we might have expected we have been very busy intensively managing the position on a number of existing clients who for all manner of reasons (most not of their own making) have struggled in recent months. There can be little doubt some of these might have failed by now if it were not for the intensive care that our systems and processes can provide.

Traditionally the failure rate of businesses is higher coming out of recessionary periods. If businesses are to survive in the long term they must have strong financial controls and processes, and good quality timely and relevant management information from which to make decisions. There is no doubt it is this, not deals with the BPSS or the banks, that has ensured our clients have survived over the past months.

Friday, March 12, 2010

5 minutes of fame ... well sort of!

It was my honour and pleasure to participate last Sunday in the very first Business Hub radio show on Star Radio 107 in Cambridgeshire.

This initiative by my good friend and associate Ian McKendrick and his colleague professional radio presenter Mark Peters was the first dedicated business radio programme on commercial radio in the region. It is all part of a fabulous idea from Mark and Ian to build a business community called the Business Hub or BHub which the weekly radio show can feed off of and in my view has huge potential to appeal to the businesses that really need down to earth practical tips and advice.

Ian called me on the Friday before the show and we recorded my brief interview on Saturday morning in advance of the broadcast on Sunday 7th March.

I wish Mark and Ian every success with the project and hope to be more involved in the future!

You can download a podcast of the show from Mark and Ian's web site, my few minutes of fame are at 30:50 just after an interview with Dame Kelly Holmes!!  The whole hour long show is of course worth a listen!

Thursday, February 11, 2010

Interest rate outlook

The following article was published this week by our good friends at Independent Banking Consultants, and was written by Mike Bligh at Valiant Consulting. With their permission we thought it worth repeating it here.

With base rates now held steady for 11 months, The Bank of England's Monetary Policy Committee (MPC) voted last week once again to hold base rate at 0.5% and to hold its asset purchase programme at £200bn. The halt to QE had been widely expected, and financial markets were largely unmoved by the announcement. The statement accompanying the decision was also very much as expected. The MPC noted that there had been some, albeit tentative, signs of recovery in activity and it expected the recovery to proceed gradually, impeded to a degree by tight credit conditions and the need for further measures to strengthen balance sheets in the public and private sectors.

What next for the economy?

The debate will now shift towards the question of when the MPC will begin to raise rates. In its November 2009 Inflation Report the MPC projected that inflation would be above target and rising in two years' time if policy were held on its current setting and the markets expect a similar projection in the February Inflation Report, which is due to be published on Wednesday 10th February. That being the case, the only reason for keeping policy ultra-loose is a concern about the strength of the recovery and the worry that the economy might relapse into recession. By the middle of the year current city forecasts are that the economy will have shown more convincing signs of growth, persuading the MPC that the current "emergency" policy stance is no longer needed.

So where might base rate be heading?

In a recent poll of 66 analysts across all the major banks in London the median forecast saw rates staying at 0.50% until August/September 2010 before rising to 1% at the year end. Looking forward into 2011 the median forecast saw rates rising further to end the year at 2% - 2.25%.

It's worth noting though that there is some divergence of views within these averages. Respected names such as BNP Paribas, Lloyds Group and Standard Chartered hold the view that rates will not be above 1% by the middle of 2011 whilst others of similar standing, such as Barclays Capital, Deutsche Bank, Goldman Sachs and HSBC, see rates at or beyond 2.50% by the same point.

Much of this divergence of view rests on the continuing recovery of the patient that is the UK economy. At the moment that recovery appears very fragile, credit supply remains highly constrained and nominal spending is weak. If there were to be no material acceleration in activity in H1 we think it highly likely that the MPC would consider a further sizable expansion in QE with an increase in base rate deferred till 2011. Regardless of when rates start to rise those with borrowings linked to LIBOR rather than Base rate will feel the pinch first as markets begin to price in increases to come.

Mike Bligh
Managing Director
Valiant Consulting Limited

Valiant Consulting provides bespoke professional advice to clients on the management of their Foreign Exchange and Interest Rate Risk issues. If you would like to discuss any aspect of financial market risk management with the team then the initial assessment is free.

A Postscript ...

Since Mike wrote the piece above he has sent me an update ...

Since we wrote this piece the BOE has published its quarterly inflation report. In reviewing the content of the report and the comments that accompanied it from the Governor the markets have shifted their expectation on when the first base rate rise might be. It's fair to say that those who were expecting a 25bp increase in August are now thinking more along the lines of November and that many others have shifted their expectation towards no increase in the next 12 months.

Thursday, January 07, 2010

Where do they get these numbers from?

I have just read that the Forum of Private Business has said that the present spell of exceptionally cold and snowy weather will cost UK businesses £230m per day through employee absences!  Insurer RSA has said it is £690m per day!

There is no doubt the impact is great, especially on smaller more fragile businesses, but it is crazy to make some spurious calculation of what the figure is (as the variance in numbers above shows) - how does anyone really know?

At Insight Associates we have had our fair share of disruption, with our offices now being closed for two days. Fortunately most of our team are able to work successfully from home, but this in many cases can only work for a short while and is far from as productive as we would want it to be. However, expecting employees to travel in these conditions is a very difficult call indeed, and as an employer it is far from easy to know how to get the best balance.

The concern must be the longer term impact all this will have on already struggling UK businesses. Lost sales (which are unlikely ever to be recovered) and increased costs of working will only add to business owners woes. Some preparation can help mitigate this, and sometimes as with everything there are new opportunities which show themselves. Technology if set up and running properly can help increase flexibility.

With it seems this sort of weather making appearances more and more, a well run business needs to make sure it is well prepared!  I know we have learnt a few things for next time.

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