What is Your Favourite Mountain?

What is your favourite mountain?  The Matterhorn?  Table Mountain?  Eyjafjallajökull, (the Icelandic volcano whose 2010 Eruption closed European airspace) if only to see all the newsreaders try to get their teeth around it?

Huw Pill, chief economist for the Bank of England, says he would prefer Table Mountain over the Matterhorn but he is talking graph shapes in relation to future interest rate predictions.  Mr Pill is of course referring to the famous flat plateau at the top of Table Mountain, confirming that this route would be his option as such an approach would “hold restriction for longer in a more steady and resolute way” than the steep fall others are calling for.

The Centre for Economics and Business Research (“CEBR”) reported this morning (Monday 4 September) their prediction of two further rate rises taking the Bank of England Base Rate to 5.75%.  CEBR continued and said “the worst is yet to come in terms of borrowing costs, quite apart from the impact of fixed term loans made when interest rates were lower being rolled over at the new higher rates”

The headline to the report predicts Britain is likely to witness 7,000 business insolvencies per quarter in 2024, with the blame being laid at the door of the interest rate rises.  For context, Q2 of 2023 saw over 6.700 companies fail which was more than double the typical quarter during the pandemic.  Reference to 2019 (when will this stop being used as a yardstick we wonder?) shows a rise of 50% whilst average quarter from 2015-2019 saw 4,100 corporate insolvencies.  Looking further back in time, the previous peak was in the financial crisis of 2009.

As CEBR themselves proudly state, they reported back in 2020 that many businesses took on debt in order to survive, particularly in the retail and hospitality sectors.  Whilst these businesses saw a post-Covid bounce, many are still left with debt on which the interest is rising or will jump upon renewal.

The Insolvency Service data shows that the food services, retail and construction sectors have seen the largest rise in insolvencies and you only have to read the past few articles from the newsroom to see this in action.  Food services has seen a rise of 57%, with 900 failures alone in Q2 2023.

Of course, cost of living pressures on the individual are having an impact on companies although CEBR ponder whether the rise in insolvencies “may be indicative of a wider downturn in the economy”.  The thinktank also predict a technical recession (defined as two consecutive quarters where the UK economy shrinks) happening in the final quarter of this year and the first of 2024.

CEBRs answer to a recession?  We may see the Bank of England cut interest rates, but they are likely to remain above recent levels for a considerable time.

Our answer to the initial question?  The Matterhorn, but only when on a packet of that chocolate we only buy in Duty Free when we have forgotten to get something for Aunty Doris.  But even that is set to change this year as under a “Swissness” law, national symbols can be used to promote chocolate only when the milk it contains is sourced exclusively from Switzerland, as well as 80 percent of all other raw materials too.  And that isn’t the case anymore. 

So we’d better say (or thankfully write) Eyjafjallajökull.