UK economy had a strong start to 2024 with more GDP growth to come

UK GDP is predicted to grow by 1.1% this year, faster than previously thought, thanks to a stronger-than-expected start to 2024, according to EY’s UK economic forecasting group, the ITEM Club. The predictions in the group’s Summer Forecast are a significant upgrade from the 0.7% predicted in April’s Spring Forecast and the modest 0.1% GDP growth seen in 2023. The latest forecast also expects this economic momentum to accelerate further next year, with 2% GDP growth expected in 2025 and 2026.

Although the slowdown in wage growth is forecast to persist, real household incomes are expected to continue to rise substantially thanks to lower inflation. The EY ITEM Club predicts Consumer Price Index (CPI) inflation to remain around the Bank of England’s 2% target over the coming years, with an average of 2.5% in 2024, falling to 2.2% in 2025. This is expected to boost household spending power, which in turn is forecast to be the primary driver of stronger economic activity for the UK over the next two years.

Lower inflation is also expected to prompt the Monetary Policy Committee (MPC) to reduce the Bank Rate to 4.75% before the end of 2024. The report predicts that the first interest rate cut will come in September and be followed by a further cut in November. This is a slight downgrade on the Spring Forecast prediction that the Bank Rate would fall to 4.5% by the end of 2024, due in part to ongoing stickiness in services inflation.

The EY ITEM Club remains positive around business investment prospects. With the Bank of England expected to cut interest rates later in the year, the UK is likely past the peak squeeze from higher debt servicing costs, implying a brightening outlook. Business investment is expected to grow by 1% in 2024, up from expectations of 0.6% in April’s Spring Forecast. The report predicts more significant growth of 3.2% in 2025, in line with previous expectations.

 

Venture healthcare companies must secure new financing or face tough consequences

The downturn in the venture healthcare market has extended into 2024. Yet, many healthcare companies still secured new investment rounds at robust step-up valuations, with potential M&A and IPO opportunities, according to HSBC’s venture healthcare report, titled ‘Shake It Off?’ Conversely, companies with dwindling insider round cash will need to find new lead investors or consider consolidation or shutdown.

Helped by opportunistic IPOs and a strong private M&A market, biopharma was the bright spot for investment dollars in the first half of 2024. Investment doubled the 2023 first-financing investment pace and was up 35% overall. Digging deeper, while dollars are up, the number of deals in first-financing actually declined, meaning fewer deals got more money. Many of these deals were venture spin-outs or led by management teams just off successful exits. Overall, there were 51 biopharma financings of US$100M and above in 1H 2024, with thirty adding a new crossover investor to their syndicate.

In 2023, healthtech investments significantly declined. The trend reversed in 1H 2024, with deal activity rising each quarter. The high volume of insider bridges and round extensions decreased as investors completed their triage and started to rebuild their portfolio by funding new deals. Although investments took longer to finalise, healthtech experienced a surge in earlier-stage deals, where valuation overhang is less problematic. For later-stage financing, the growth at-all-costs approach of previous years has evolved. Companies that secured new investors in 1H 2024 primarily demonstrated additional growth potential, adopted capital-efficient models, and significantly reduced burn.

Medical devices continued a stable pace of investment, however, there was a surge in first-financing deals and dollars in 2Q 2024, led by strong venture capital syndicates and corporate support. HSBC’s report also noted more PMA-focused early-stage investment, especially in neurology. Pivotal trial funding and commercialisation for 510(k) cleared products continued to find a combination of venture capital, growth, crossovers and corporates. 

First-financing investment in medical diagnostics and tools (dx/tools) continued its 2H 2023 slide in 1H 2024, down significantly from the previous three years. Investors felt the pressure of a closed IPO market and the fear of finding a series B investor that can bridge to the growth round. However, companies that got to initial commercialisation have found that growth investors have come back, participating in six of the highest-valued financings in 1H 2024. Valuations for early stage have remained strong, however companies with heady valuations from 2020-2021 are finding flat or down rounds. Private M&A continues to falter. So far, in 2024, the report noted just two private M&A deals over US$50m upfront.

 

E-trading holds growing allure for dealers and investors in Japanese bond market

Powerful market, economic and technological trends are pushing the Japanese bond market toward electronification, which is explored in a report from Coalition Greenwich. The last decade has seen fixed-income trading worldwide transform from a phone and chat-based network into a sophisticated electronic ecosystem, allowing buyers and sellers to interact in new ways. In Japan, however, Japanese market participants have been hesitant to fully embrace e-trading - a reluctance stemming in part from a cultural preference for relationship-based trading.

Today, 27% of investors trade non-yen government bonds electronically, with 26% of notional volume executed on the screen, according to data from Coalition Greenwich. E-trading in non-yen corporate bonds is lower, with only 18% utilising e-trading and only 6% of notional volume traded electronically. By comparison, 63% of European investment-grade bonds and 75% of European government bonds traded electronically in 2023.

However, the growing benefits of e-trading for investors and dealers operating in global bond markets are increasing the allure in Japan. Japanese investors are the largest holders of US Treasury securities, for instance, with current investments totalling US$1.1 trillion at the end of 2023. Coalition Greenwich data shows that globally, 64% of US Treasuries traded electronically in 2023, with Japanese investors increasingly finding that e-trading is their best path to liquidity in that market.

“Integrating e-trading tools with key order management systems (OMSs) available to investors in Japan can dramatically improve workflows and trading outcomes with order details, compliance requirements, real-time execution data, pricing, and liquidity metrics integrated into a single view,” said Kevin McPartland, Head of Research at Coalition Greenwich Market Structure & Technology and coauthor of ‘The Evolution of Global Bond Trading in Japan’.

Global bond dealers increasingly provide access to electronic platforms to manage growing volumes. The Japanese buy side is also looking for ways to cut costs and operate more efficiently to remain competitive, which increasingly means utilising new all-to-all and request-for-market trading protocols. Automation is a crucial part of any efficiency strategy, which, in turn, requires greater adoption of e-trading tools.

“Innovative solutions targeting the local market, competition from global competitors and strong demand for global debt will all act as tailwinds to growth in e-trading,” commented Seiji Ishii, Head of Japan at Coalition Greenwich and report co-author. “While that growth will change the nature of buy-side to sell-side relationships, relationships will remain critical to market functioning, with technology ultimately enhancing the level of service provided.” 

 

Lightyear urges British businesses to switch accounts to maximise savings 

Businesses in the UK can now access Lightyear’s business accounts and start putting their money to work through cash interest and investments on the platform. This comes as the neobroker releases analysis on Bank of England data highlighting the increase in the total amount of cash British businesses hold. 

According to Lightyear’s analysis of Bank of England data published on 1 July, businesses hold more cash than credit; the total amount of money held in deposits by private businesses in the UK has been rising since 2008 (when reporting started) – with a spike since COVID – and is continuing to trend upwards. It overtook the amount lent to businesses in 2017. The release of May’s figures reveals that companies now hold £562bn in deposits, versus £449bn in credit.

But while businesses have over half a trillion pounds that could be put to work, £426bn (76%) is sitting in savings or current accounts with an average interest rate of just 1.7%. This is despite the Bank of England holding base rate at 5.25% in the most recent decision. With rates not expected to drop below 4% in the next five years, Lightyear is now encouraging British businesses to look elsewhere if they’re keeping their money in high street banks, and find somewhere where they can make the most out of high rates. 

Lightyear’s launch of business accounts is designed to help companies in the UK make the most of their funds, ensuring that excess corporate cash isn’t eaten up by inflation while sitting in bank current accounts. The neobroker will start offering businesses 5.14% AER on GBP through their new treasury product, with the money held in BlackRock MMFs. These are highly liquid, low investment risk funds, traditionally reserved for large corporates who can buy in with a £1m minimum investment. These funds track the Bank of England base rate. The accounts are available in two additional currencies, offering 5.37% AER in USD and 3.62% in EUR (as of 19 July 2024). All three currencies will be the highest available interest yield for businesses on the platform, giving overnight interest that accrues daily and pays out monthly. Lightyear also offers 4.5% interest on businesses’ uninvested GBP (variable).

 

Finastra and CredAble to deliver a holistic SCF offering to banks globally

Finastra has announced a partnership with CredAble, a working capital finance platform, to expand the functionality of Finastra Trade Innovation. CredAble’s platform is now integrated with the solution, providing new and existing customers with a supply chain finance offering. As a result, banks can accelerate their revenue growth, expand their business and increase customer satisfaction by offering corporates a more comprehensive range of financial services within a single platform.

Trade Innovation is a trade services platform that uses straight-through processing, digitalisation and data analytics to enable intelligent trade for growth, and to evolve with compliance, customer and competitive demands. CredAble is a working capital platform that enables banks to provide supply chain financing solutions, serve diverse enterprise and small and medium-sized (SME) businesses, and unlock lucrative revenue opportunities. 

“The partnership ensures institutions can continue to innovate at speed, decrease time to value and utilise data for decision making across the whole of their working capital and supply chain finance portfolio, ultimately supporting increased growth for both their business and that of their customers,” said Anastasia McAlpine, Head of Product Management for Trade and Supply Chain Finance at Finastra.

 

Bladex selects CGI as partner for trade finance business evolution

Bladex has agreed to implement the CGI Trade360 trade technology platform, becoming the first bank headquartered in Latin America to do so.

The implementation of the platform at Bladex, delivered by CGI’s US and global delivery teams, will provide the infrastructure and support needed to improve the bank's regional and global trade business, optimise letter of credit processing, and enhance working capital solutions as well as security and operational transparency. The platform should enable Bladex’s corporate clients to manage their financial needs quickly and accurately.

“We appreciate the partnership with CGI and the future implementation of this powerful technology platform that will allow us to accelerate the deployment of digital solutions which constitutes an important milestone in our continuous service improvement strategy,” noted Jorge Salas, Chief Executive Officer of Bladex. 

 

BBVA signs with Telefónica Tech to boost cybersecurity 

BBVA has chosen Telefónica Tech to boost the cybersecurity of its operations on a global scale by incorporating artificial intelligence and process automation to prevent cyber threats. 

In addition, this alliance involves the creation of a new specialised centre in Mexico, which will function as a mirror of BBVA's existing Global Cybersecurity Centre in Spain. The combination of the two aims to provide comprehensive and uninterrupted coverage for the entire group.

With the development of this project, Telefónica Tech has become one of BBVA's main strategic partners in cybersecurity. The bank will incorporate the latest advances of the technology company, supported by its global experience and the advantages offered by intelligence to detect, identify and respond to potential threats, as well as to monitor cyber-attackers' activity. Telefónica Tech provides almost fifty services aimed at providing a holistic security response to each operational and business element of the bank, ranging from solutions for the proactive anticipation of threats, definition of operational tactics, strategies to strengthen BBVA's resilience or protection for Data Processing Centres (DPCs).