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Bank of England injects £1.9bn into UK companies via coronavirus scheme

The Bank of England has injected £1.9bn into UK companies since 23 March via its short-term lending programme, figures have shown, as it tries to shore up the economy amid the coronavirus outbreak.

The lending comes via the Bank’s covid corporate finance facility (CCFF), through which it buys companies’ short-term debt, known as commercial paper.

The CCFF is a key plank of the government’s £330bn coronavirus lending programme. It hopes the money will mitigate disaster for the economy during the coronavirus pandemic.

Threadneedle Street has unveiled a range of other measures to boost the economy. These include slashing interest rates to 0.1 per cent, a record low, and pledging to buy £200bn more government and corporate bonds.

Following the playbook from the 2008 crisis, the Bank has also reopened “swap lines” with the US Federal Reserve. UK banks claimed $6bn (£4.8bn) yesterday via this facility to help ease the pain on their balance sheets.

The uptake for the CCFF comes as warnings grow about the effect of coronavirus on the global and UK economies.

Ratings agency Fitch today predicted the UK economy will shrink by 3.9 per cent in 2020. And figures yesterday showed claims for benefits via Universal Credit soared to 950,000 in the last two weeks.

Worries over access to lending

The government and BoE have been criticised for some confusion about the lending schemes on offer, however.

Business groups such as the CBI have said some firms are “falling through the cracks”. They say some businesses do not have the “investment grade” credit rating needed to access the CCFF, but are too big for the other loan programmes on offer.

S&P Global Ratings told City A.M. that it had received around 30 enquiries by Monday from UK firms that hope to be rated investment grade – at low risk of default – so as to access the CCFF.

But S&P’s head of EMEA sales Lynn Maxwell said that “less than 25 per cent” of the firms expressing interest “have investment grade potential”. She added that it is “early days,” however.

Chancellor Rishi Sunak has promised to help broaden the reach of UK loan programmes. He has said the government is working on making sure all companies can get the help they need.

By Harry Robertson

Source: City AM

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UK companies turn a little less gloomy over Brexit impact: BoE survey

British businesses turned less gloomy last month about Brexit’s eventual impact even though they expected the uncertainty to persist for longer, according to a survey conducted either side of Prime Minister Boris Johnson’s election win.

While most businesses still think Brexit will hurt sales over the long run rather than increase them, the gap narrowed in December, the Bank of England’s monthly Decision Makers Panel showed on Thursday.

The proportion expecting an eventual sales boost from Brexit rose to 17% from 13% in November, the highest since May 2018, the BoE survey showed.

Those expecting an eventual hit to sales fell to 33% from 37%.

Investors are watching for signs that Johnson’s victory in the Dec. 12 election has lifted worries about Britain’s political stability, potentially providing a much-needed boost to the economy which slowed to a crawl in late 2019.

Still, the outlook in the short-term remains challenging.

The BoE survey showed 53% of businesses cited Brexit as one of their top sources of uncertainty, the lowest share in six months and down from 55% in November.

Separately on Thursday, a British Chambers of Commerce survey of businesses showed “protracted weakness” across the economy in the fourth quarter, while an IHS Markit/CIPS report confirmed the sharpest decline in factory output since 2012.

Johnson has said he will clinch a deal settling Britain’s future trade ties with the European Union before a deadline on Dec. 31 2020, although trade experts are skeptical about the chances of a comprehensive agreement being struck by then.

Some 42% of companies who took part in the BoE survey did not expect Brexit uncertainty to be resolved until 2021 at the earliest, up from 34% in November.

The survey of 2,887 business executives was conducted between Dec. 6 and Dec. 20.

Reporting by Andy Bruce; Editing by William Schomberg

Source: UK Reuters

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‘Zombie firms’ dragging down UK economy – KPMG

At least 8% of UK companies are displaying ‘zombie-like symptoms’ and are dragging down the country’s economy said the latest report of KPMG.

A zombie company is one has has a static or falling turnover, profitability is persistently low, margins are squeezed, cash and working capital reserves are limited, leverage levels are high, and has limited access to investment in the future.

One in seven UK companies would have collapsed were it not for low interest rates, as they are under sustained financial strain said the report that looked at 21,000 businesses. Possibly as many as 14% of the country’s companies are displaying these ‘zombie-like symptoms’.

These companies threaten to exacerbate a future downturn, said the new analysis KPMG and warned that “the rise of zombie firms in the UK could spell trouble ahead”.

The highest concentration of zombie firms was in the energy sector, where 23 per cent were under sustained financial strain, the automotive sector (17%), and in utilities (15%).

Yael Selfin, chief economist at KPMG in the UK, said: “The threat that zombie companies pose to the wider economy is very real.”

“If interest rates rise further, highly-leveraged businesses may soon find that borrowing will become more difficult to repay, and if the economy continues to stutter, these businesses will be left especially vulnerable to adverse market forces,” she said.

Blair Nimmo, head of restructuring at KPMG’s UK operation, said: “Urgent dialogue is required between regulators, banks and businesses in order to minimise the ongoing drag that these companies have on the economy.”

By Caoimhe Toman

Source: ShareCast