Alternative credit market optimistic in face of stagnant inflation
Despite today’s Office for National Statistics (ONS) figures reporting stagnant inflation, leaders from the alternative credit market say the economy is moving in the right direction.
The ONS Consumer Prices Index (CPI) rose by 6.7 per cent in the 12 months to September 2023, the same rate as in August, making a freeze on interest rates likely next month.
On a monthly basis CPI rose by 0.5 per cent in September 2023, the same rate as in September 2022.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.3 per cent in the 12 months to September 2023, the same rate as in August.
On a monthly basis, CPIH rose by 0.5 per cent in September 2023, compared with a rise of 0.4 per cent in September 2022.
According to the ONS, the largest downward contributions to the monthly change in both CPI and CPIH annual rates came from food and non-alcoholic beverages, where prices fell on the month for the first time since September 2021, and furniture and household goods, where prices rose by less than a year ago.
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Commenting from an alternative credit perspective, Kuflink chief executive Narinder Khattoare noted that inflation had gradually fallen over the past 12 months, albeit slowly.
“There is still a long way to go but signs are positive that we are heading in the right direction which is great for the economy and shows stability,” he said.
“This will only give investors and borrowers more confidence in the UK economy and hopefully the MPC will hold the Bank of England rate at 5.25 per cent, which I think has already peaked but could have been a lot worse as economists had predicted.”
Khattoare said borrowers needed to understand that rates over the past decade have not been the norm, adding that the next 12 months is likely to be a true reflection of where they should be.
“Savers will also benefit as they won’t be getting 0.25 per cent on their savings as they have over the last 10 years,” he said. “The P2P space offers great returns to savers as an additional diversification strategy.”
Relendex executive chairman Paul Sonabend was similarly pragmatic, highlighting that September’s inflation numbers are broadly in-line with forecast, while inflation is expected to fall considerably this month.
“The general consensus amongst our borrowers is that 2024 will be a great time for housebuilders to commerce developments as 2025 should be an excellent year to be selling new build homes. By this stage inflation should be tamed, interest rates falling, and a new government should have injected confidence into the UK economy,” Sonabend said.
“We anticipate that our investors will be eager to finance new developments as with returns on gilts and bank deposit starting to fall as the interest payable on loans secured on UK property will become increasingly more attractive.”
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However, Bibby Financial Services chief executive Jonathan Andrew was less optimistic on behalf of small and medium-sized enterprises (SMEs).
“Today’s stagnant inflation rate is bad news for UK businesses, especially as our recent research saw 59 per cent of SME owners continue to cite inflation as a key challenge,” he said.
Andrew said inflation is around three times higher than target, leaving businesses to contend with rising fuel costs, skills shortages and persistently high interest rates.
Meanwhile, financing is increasingly expensive and hard to access for many smaller businesses.
“SME owners and decision makers say they want greater tax incentives, less red tape and access to low interest loans or grants and we must see measures that address these challenges in the Autumn Statement next month,” he added.
“Without further support, we’ll likely see many more small businesses being pushed over the edge over the coming months.”
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