This year is set to be an interesting one with a good deal of uncertainty at the present time, but how will this affect the business asset finance sector? The ‘B’ word is top of the agenda, but we’ll also take a look at what else could impact performance over the next 12 months.
We’re roughly 100 days away from exiting the EU and, despite the rambling ‘negotiations’ that have gone on for two years, it looks like we could very well be heading for a no-deal scenario. The impacts of this are the subject of much debate, but one outcome is clear … uncertainty.
Whilst the effects of Brexit and other matters have been obvious in the motor and motor finance industries, business asset finance as a whole has continued to experience significant growth. While the numbers are still being calculated, the Finance and Leasing Association is bullish that 2018 will have proved to be a record year for business asset finance despite the economic uncertainty.
Interest and Exchange Rates
There is a widely held expectation that interest rates will gradually rise in 2019, but the UK’s monetary policy will be affected by the Brexit terms. If the economy is hurt by Brexit then interest rates could be cut again. Alternatively, interest rates might have to be hiked more aggressively if the pound takes a pummelling.
Whilst Brexit has been dominating European politics, 2018 saw a broader set of international economic pressures. “Trade War” predictions thanks to China and the US agitating, combined with the slowing down of the Chinese economy have the potential to influence UK businesses too. Exchange rate volatility and tariff issues will continue to affect any business trading globally.
Regardless of the uncertainty, UK businesses have to plan for their futures rather than putting all investment decisions on hold. Where there are concerns about growth forecasting, liquidity or future capital requirements; business asset finance, as opposed to capital utilisation, helps spread risk and hedge bets.
The funding for plant and machinery, commercial vehicles, agricultural equipment and construction has proved resilient, even robust, in the face of negotiations with the EU. Whilst car finance has decreased, this hasn’t dragged the overall result down. Arguably, other matters in the fleet industry such as ‘Dieselgate’ and the resulting WLTP introduction, have caused decreased supply and reduced demand and growth is predicted to recover once all the ripples have passed.
In October 2018, the FLA reported that broker-introduced finance was generating month on month and year on year growth, and this looks set to continue into 2019 regardless of Brexit.
January 1st 2019 sees the International Accounting Standards Board’s new rules around leasing come into force for public limited companies and other firms that report to International Financial Reporting Standards (IFRS). Click here for an explanation of IFRS16 and how it could affect you.
This means that lessees will need to show their ‘right to use’ a leased item as an asset and their obligation to make lease payments as a liability on their balance sheets. They will also be obliged to reflect depreciation of the asset as well as interest on the lease liability in their profit and loss account.
2019 is guaranteed to be an interesting year for UK plc. Keeping options open and being flexible are likely to make a big difference to successes achieved. At Maxxia, we believe asset and wider business finance will play a key role in helping UK companies navigate the challenges that are on the horizon.
Contact us at Maxxia if you’d like to discuss your business asset finance needs in 2019.