In this video, Paul and Kirsty discuss:
Watch the short clip, or you can read the full transcript below.
13 min read time
Phoebe Price
In this video, Paul and Kirsty discuss:
Watch the short clip, or you can read the full transcript below.
Kirsty McGregor: Paul. Hello! And welcome back, albeit only briefly. You've been off with back surgery. You're still in rehab, trying to get strong enough again to get into the city every day. I hope you're feeling a bit better, and we're going to make this as quick as possible, so you can move again off the chair and keep walking around.
Paul Surtees: Hi, Kirsty, it's good to be here, and it's good to get the brain moving a little bit. After 3 weeks of being a bit stodgy.
Kirsty McGregor: Exactly. Well, this is it. We've all had a summer as well, and although yours has been a bit different, Labour's 1st budget still isn't until the 30th of October, and it seems like the Cabinet, have been making all efforts to stand in some rose gardens and scare the life out of everyone. So until we get some more detail, it just feels like things are drifting on a bit. And the Bank of England didn't choose to change interest rates this week, and the business groups are getting more and more frustrated that this stance is putting many business decisions on hold, and maybe some of your clients are doing that as well. But over in the Us. Momentum is building Paul, politically and economically. The fed have been busy this week, haven't they?
Paul Surtees: They have indeed, and you know, I think often listeners might be wondering why we. We pause to talk about the Us. Rather than the Uk. But of course, you know, given the size of the economy, it does have the impact globally. If things turn a little bit south, so, as you say the Fed cut rates last week by 50 basis points or half a percent? It's important. Because if you remember what we were talking about last month. The fed didn't cut rates, and the markets had a complete temper tantrum, after, you know, some pretty weak employment data that had come out on the 1st Friday of the month. But our message really last month was, keep calm and carry on, and ultimately the equity markets have come back to where they were, and I think that was probably the right, the right message.
So why is it important in in the Us. Well, unlike the Uk, the fed actually has a dual mandate, and the Federal Reserve Central Bank has a dual mandate, and that has price stability at 2%. That's the same as us. But also maximum sustainable employment. And once we've got a nod to that as the second priority. This is a you know, an equal mandate And so, therefore the fed should be absolutely balancing its focus between inflation and employment. And what they're effectively saying now is that the risks are now fine, you know, finely balanced between the 2, and they can take their eye off.
not off. But, you know, for the last 12 months or so they've been only focused on inflation. And now, whilst they can't call victory, they can say that we can approach the economy on a slightly more equal footing. So given that the Us. Is is doing all right. You know the Gdp is is is quite a bit better. Now. Inflation is at 2.2. The employment rate is still relatively low unemployment rate. The job now for the fed is to land the plane in this soft economic landing rather than the recession or the inflation type options that we've spoken before.
So, turning our mind back to the Uk, what's the impact for the Uk, well, really, it's going to be all about the rate differential, I think, because if the fed moves to 3% next year, which is what the investment banks are calling for, and we lag here in the Uk. As you said, Kirsty, we didn't cut rates last week.
If if that differential gets bigger and bigger, then, of course, you know, 1st and foremost, we're going to have moves in the currency. So over the last couple of days we've seen a you know, a recent high up to 1, 33 50 in sterling versus the dollar. So that would be good for imported inflation so hopefully. That will help us get our inflation numbers down. But it would, of course, be bad for our exporters.
Kirsty McGregor: So businesses and their accountants, which is all our world, are still really busy, aren't they? And we're seeing a lot of activity through the platform. Still, so does this still feel really positive? Or is it more crisis funding? What are we seeing with accountants funding.
Paul Surtees: I think that month to month we continue to see record levels of funding requirement coming through, I think, as I touched on a few times this year it has felt much less about crisis funding and much more about growth funding.
If I just pause for a second, actually, September is the largest filing month, you know, in terms of number of accounts filed at Companies House. Obviously accountants are very busy. And that means that credit scores and credit limit. Changes are going to be coming through quite fast this month and next, as those start to get picked up from the rating agencies, so lots of our partners who are working in this space have been bringing us lots of credit review service inquiries, and we expect that to really pick up in October, but in terms of funding. I think we've been seeing good cash flow, lending requirements coming through. This is, I think, seasonal related rather than anything more nuanced. Q. 4 is always our second biggest quarter. q. 1 is always our largest quarter in terms of funding needs, so I think this is seasonal. After the holidays coming back in. But I think what is really interesting is is that we are seeing a massive side helping of corporate finance like work coming in to buy out shareholders, mbis mbos and the type of business that that really your firms will be specialising in Kirsty. So you know, perhaps if I asked you, you know, how should accountants be handling the market that we've got, whether it's the fed or the Uk, or whatever the bank coming in and one of the sorts of conversations that you're having at the moment.
Kirsty McGregor: So. Yes, I can explain why all of that is going a bit mad with lots of transactions, but I've had quite a few conversations recently with firms who were telling me that their clients are certainly showing that they're getting weary and tired, and one described him needing to have a cuddle call with a client.So he was giving him some really sensible advice, giving him some ideas and and a bit of a task to go away and do and report back next week hopefully, he'll be feeling a bit more positive, and it'll galvanize him with some energy after doing that.
And so we're back into that world again where accountants are being the quasi therapist for some of their clients, and that is so so valuable, and they're brilliant at it when they do it. But the the big activity then around these transactions at the moment is all down to the budget. And it's partly because these businesses are also tired, and so if they are expecting, I mean, there's an anticipation, if not a definite expectation, that the Chancellor is going to increase capital gains tax at the budget, and potentially also the withdrawal, or reduce even further the reliefs that used to be called entrepreneurs. Relief is now business asset disposal relief, for when businesses sell their businesses. That's explaining why you're hearing a lot more from companies that are looking to fund a company share buyback, or whether there's Mbos and Eots and employee buyouts and trade sales. They're all becoming increasingly common, and we are very, very busy. However, from now we've only got a few weeks left before the budget, and in most cases that will not be enough time to complete the transaction. So as accountants, if your client starts opening these conversations with you. Now you're going to be hard pushed to complete any deal before the budget.
However, if the Chancellor stands up and does change capital gains tax. And then doesn't say it has to take effect at midnight that day, which she may do. But she actually says it will take effect on the 31st of March or the new tax year. Then this transaction activity and this spurt of that you're seeing at the moment will carry on for a few more months.
So accountants should expect that when this hits the press and they start understanding that capital gains tax is going to be going up for them. You will probably find more clients raising this with you as their accountant, and maybe you're going to have to start talking to them then about how they're going to exit their business.
You might also have clients who want to be more ambitious, and those that want to take advantage of this market and the Delusia businesses who might be willing to be acquired, and they might be wanting to make an acquisition.
So again, that's going to probably require funding. So all around this, if you've got any questions about funding requirements, get in touch with your partnership manager, the team here, and we can support you around what products might be suitable for that transaction. Now.
Paul Surtees: That's it. Thanks.
Kirsty McGregor: I was just going to say, actually, one last thing, Paul, if I can, is that if you are going out with post budget communications. And this does happen at the budget, as we suspect. Then why not write something a little more more commercial to clients than the usual tax card that they get in the post budget updates, you know. So talk to them about this because this is something that they will see is really valuable.
Paul Surtees: Indeed. Thank you very much. And it's good to be back chatting through these challenges and the opportunities. And you know, I'm gonna hobble back to my bed. But we will be here again this time next month, you know, reviewing these things ahead of the budget. But ultimately, you know, lining up thinking about what comes next.
Kirsty McGregor: We will indeed. We will see you then.
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