The UK’s Yorkshire and Chelsea building societies are said to be in “advanced talks” over a potential merger.

The Chelsea is the fifth and the Yorkshire is the second largest building society in the UK.

If a deal is reached, it would rival the Nationwide as big mutually owned mortgage and savings institution.

In August, Chelsea revealed a half-year loss of £26m after it had assigned £41m to cover to mortgage frauds.

The Chelsea has 35 branches and 700,000 members, while the Yorkshire has almost t three times as many members at 2 million and over four times as many branches, with 143.

The Chelsea building society announced, “the board of Chelsea has been undertaking a detailed review of the society’s activities, operations, financial position and corporate structure”.

“As part of this, Chelsea has considered the potential benefits to members and other stakeholders of a merger and this has culminated in discussions with the Yorkshire.”

The talks of a deal are being seen as a rescue package for Chelsea. New chairman Stuart Bernau has been analysing the business and viability over its independence.

In 2008, it reported a loss of £39m which was the highest recorded loss by a building society. £44m was written off due to huge investments in two failed Icelandic banks.

Another £15m was written off by the Chelsea after buying a mortgage broker in 2007 whose business collapsed during the credit crunch.

Building societies differ from banks and stock-market companies, as they are owned by their members, and struggle to regain reserves if they suffer heavy losses.

The Chelsea went on to reveal that “for a merger to proceed, the boards of both societies would need to be satisfied that it will be in the benefit of each society’s members”.

“The merger would also be subject to approval by each society’s members and the FSA.”

It has yet to be revealed if a merger would provide a windfall to the members of both societies. A spokeswoman for the Chelsea said that such details were yet to be discussed.

Several takeovers of building societies have been made since autumn 2008 in an attempt to save them from problems brought on by the global financial crisis.

In September last year, the Nationwide began its takeover process of both the Cheshire and the Derbyshire, then the Yorkshire made a move for the Barnsley building society, with the Skipton taking control of the Scarborough.

Whilst the general financial atmosphere is improving and optimism growing, it is too soon to announce that we are in the process of recovery, according to experts at Ernst and Young Item Club.

The influential professional services firm expects some growth towards the end of 2009, but this growth should begin to struggle, with 1% expected growth for 2010.

They also predicted that customers repaying debt will grow slower than first anticipated and impending tax rises will follow the election.

BT Business research predicted a more optimistic outlook, declaring that small businesses are positive about the forthcoming year.

In September, BT Business conducted a survey of over 7000 small businesses and found that 75% believed their business would see an upturn in 2010, with 61% confident about their business’ prospects.

Professor Peter Spencer, Chief Economist from the Item Club, issued a wake-up-call to all those getting carried away with the optimism of recovery.

He warned, “there could still be substantial pain to come for corporates and consumers.”

“For a sustainable recovery the UK economy needs world trade to pick up and there is still not much sign of that happening.”

One of the factors holding back growth is that the VAT rate will return to 17.5% from its current level of 15% on 1 January, a change which may see consumers making purchases before the New Year.

Several other factors which will hold back growth lie on the horizon. An increase in national insurance contributions, the new 50p tax rate, the termination of the car scrappage scheme, tighter government spending and the return of stamp duty on housing are all due to hit the country.

Judging whether the recovery is happening, on the way or unlikely is difficult to forcast.

Professor Spencer went on to tell the BBC that the recent economic data has been “very mixed,” adding, “the stock market is absolutely rampant, industrial surveys all back in positive territory, but it’s yet to show through in hard data for output and things like that.”

“And when it comes to lagging indicators like unemployment, I’m afraid it’s going to be ‘feel bad’ for quite some time to come.”

On Friday, the official statistics for the Gross Domestic Product (GDP) are released, with many expecting no economic growth at all.

GDP is a measurement of the services and goods produced in a country, and since the first quarter of 2008, the UK GDP has been in negative figures.

The Bank of England has focused on quantitative easing, an act of pushing money into the economy. Professor Spencer feels that this has been of little success, with the little improvement on bank lending, going on to complain that “instead, the banks appear to have used much of the money to rebuild reserves and improve liquidity.”

Official statistics show that one of the main measures of inflation has reached its lowest point since September 2004, another sign of sterling weakening. The annual rate of 1.1% in September was lowered from 1.6% in August by the Consumer Prices Index (CPI).

A separate measure of inflation conducted by the Retail Prices Index (RPI) found that mortgage interest payments and housing costs also dropped, from -1.3% to -1.4%.

The pound also reached its lowest point in the past six months when it fell 0.5% against the Euro to 1.0628 Euros and to a five-month low of 1.5730 US Dollars.

Weak

Duncan Higgins, a senior analyst for Caxton FX, felt that “this is bad news for the pound.”

“The CPI figures will weigh heavily on the UK currency and will continue to discourage investment.”

A report conducted by the Centre for Economics and Business research predicted UK interest rates would not rise above 0.5% until 2011 and fail to meet the 2% mark until 2014; a further damnation to the outlook for the pound.

Meanwhile, the strength of the UK economy was dealt a further blow last week when it was revealed that industrial output dropped in August.

A prediction for the GDP had to be recalculated by the National Institute of Economic and Social Research after the UK economy failed to grow during the June/September quarter.

However, the economy is still very “frail” according to the British Chamber of Commerce (BCC), despite business confidence improving.

In an effort to sustain a stable broader economy and prices, the Bank of England is making efforts to retain 2% CPI inflation. Should the CPI inflation drop below 1%, the governor of the Bank of England must provide a written explanation to the Chancellor, Alistair Darling.

High energy prices a year ago, in comparison to lower energy prices this September are being blamed for the recent fall in inflation. The Office for National Statistics (ONS) reported that electricity, gas, and other fuel bills tumbled by 7.3%. Energy costs have started to level more recently, with little change from August to September.

Jonathan Loynes from Capital Economics predicted that we can expect to see CPI back at the 2% mark by the start of 2010, due to increased energy prices and VAT returning to 17.5%. He does believe that a “huge amount” of unused production capabilities would keep inflation down and “keep alive the threat of a period of outright deflation late next year or beyond.”

In contrast, Keith Wade of Schroders UK forecasted that it “probably will be the low point in inflation.”

The Council of Mortgage Lenders (CML) has revealed that the number of new mortgages granted for August is down by 3,000 from 56,000 in July to just 53,000.

Despite such a large fall in granted mortgages, this is still 29% higher than last year’s figure for August.

The CML believe that house sales may have reached a plateau, as most first-time buyers still have to provide large deposits.

Overall, the total value of mortgage lending for buy-to-let and remortgaging for the past year is down by 36% on last years figures.

Long Recovery

The CML’s economist, Paul Samter believes “house purchase activity has revived from its moribund state at the beginning of the year.”

“It will be a drawn-out recovery process with seasonal ups and downs, but house purchase activity is now on a firmer footing.”

According to the CML’s figures, first-time buyers need to find on average 25% deposit in order to receive a home loan.

Regardless of whether a borrower is a first-time buyer or not, two-thirds of all mortgage deals require at least a 25% initial payment.

Relaxing

The Bank of England has claimed that the number of new mortgages approved in August, but not lent, has fallen for the first time in eight months.

From 52,317 approvals, down from 52,404 in July, is a sign that levels may be beginning to level off in the coming months.

Data shows that the number and value of house purchase loans is higher than a year ago, the total value of mortgage lending has dropped by a third.

Standard variable rates are very low, giving borrowers much less incentive to remortgage their house or seek out fixed rate mortgages elsewhere. Buy-to-let mortgages are also down  on a year ago.

“At £12.3bn, gross mortgage lending - which encapsulates all mortgage lending activity, including house purchase, remortgage and buy-to-let lending - declined 36% from August 2008,” the CML reports.

House Prices

The autumn of 2007 saw the onset of the credit crunch, with house prices taking a sudden downturn. Over the past few months, house prices have been steadily rising, giving hope that the recent recovery may become more prolonged.

House prices rose by 2.8% in the 3 months leading up to September, in contrast to the 3 months prior according to the Halifax; the first quarterly increase for two years. Further support to the encouraging recover was made when the Nationwide confirmed that house prices have risen continuously for the past 5 months and have returned to the level of September 2008.

Sales have doubled between January and August and the market seems much more stable in comparison.

Experts have warned, however, that the rise in house prices is supported by the shortage in new properties being put on the market. If there is a sharp rise in houses placed on the property market, the rise in house prices may come to a sudden halt.

Woolworths may be gone, but it is well and truly unforgotten.

A few weeks ago, we heard that the Barclay Brothers had bought the Woolworths name to use for online selling of some of their famous brand names. But now it seems not only that, but some of the Woolworths stores may be returning under a new name and new management.

Woolworths went into administration in November of last year after it was struggling to pay its £385 million debts. The 800 chain store closed its doors to customers throughout December, and the final stores closed their doors at the beginning of January this year.

New beginnings

However, it is planned that in March of this year, the manager of the Woolworths in Dorchester is going to re-open the shop she has worked in for eighteen years under the new name of Wellworths.

Claire Robertson started working for Woolworths when she was 16 as a Saturday girl in Somerset.

Ms Robertson claims the store in Dorchester “was like her second home”, and was said to be “very sad” about its closure.

However, customers will be able to visit the pick ‘n’ mix counter she used to refill as a teenager once again.

Ms Robertson said: “The idea was very easy [because] Dorchester’s Woolworths was a successful store.

“The getting it onto a business plan and convincing somebody that it was a good idea was slightly more difficult.”

She also added that she hoped to “get back Woolworths customers and attract some new ones as well.”

Future Employees ‘can’t wait’…

Many of the employees of the old Woolworths that have so far been unable to find new employment will be getting new jobs in the new store. Mr Robertson has done her best to make sure that the team she has hired are the same team that worked for her before.

Patty Ball and Terri Edwards are two such examples. They said: “We can’t wait [until it opens] – our little family back together again.”

Economic Limitations

However, starting up a business in the midst of the current economic climate will be no easy trait.

“It would be silly not to thing in this time opening a new retail outlet is not going to be difficult, but people out there need to by foods at good value,” Ms Robertson said.

“We have already sourced out pick ‘n’ mix – I remember as a Saturday girl filling the pick ‘n’ mix counter – again, it has been part of my life. That building feels like my second home.”
 

What do You Think?

Will Woolworths ever be truly gone? Do you think this store will be a success? Is it a very risky plan, or is it the beginning of a new High Street name? Leave your comments here.

Even though the UK and the worldwide economy may be on the slide there are still literally millions of people around the globe thinking of setting up their own businesses. The internet has brought a new dimension to start-ups and reduced the historic set-up costs which had scared off so many people in the past. However, even though set-up costs have fallen dramatically many people do not realise that there are still many opportunities to obtain start-up grants and assistance.

A quick check on Google will show you just how many opportunities there are to obtain financial and advisory assistance if you are looking to start-up your own online (or offline) business. But why are the authorities still looking to assist new businesses even though start-up costs have reduced substantially?

There are a number of reasons why the government and other associations are still keen to see new businesses develop and grow, reasons such as :-

Local Economy

The more successful a local business is the more chance of employment opportunities in the region. This takes pressure off the local authorities, puts money in people’s pockets and also ensures that there is a local work force on tap for those who need to increase staff numbers.

Country Economy

The more successful business which the UK assist the more taxes will flow into the Treasury coffers and the less funding will be required for social security / unemployment benefit, etc. Many research projects have also highlighted the personal boost to people who are working for their own money, people who have a reason to get up and go to work. Everyone likes to be part of a successful business.

Balance Of Payments

The stronger the UK economy the more money will flow in from outside companies who want to acquire services and goods from the UK. While this has a positive impact upon the exchange rate, it can also attract further tourism when people realise that the UK is once again a prosperous economy.

EC Grants

As part of the EC the UK, and other partners, will receive an annual budget to assist national business and start-ups. Very often this funding will be reclaimed or reduced if it is not fully invested so while the authorities need to be careful whom they are assisting, they also need to ensure that funding does actually find its way to the people who need it

Post Start-Up Costs

While we mentioned the reduction in traditional start-up costs because of the internet, there are still other costs which need to be considered post-launch. Advertising, promotion and investment for the future are just some areas where funding can be very useful – it is not just the start up period which is dangerous as figures have shown that the vast majority of businesses will struggle in the first year, with a large number actually going out of business.

Summary

So if you are looking to start-up your own business you need to think a little longer term than many at the moment. True, you may not need as much start-up funding as we have seen in the past, but there is still a requirement to invest for the future and ensure you are not another statistic that suffers in the first 12 months and goes out of business.

As news of the credit crunch continues to dominate the financial pages, many are over looking the problems many entrepreneurs are forecasting after the increase in small business tax from 10% to 18%.  Recent research has shown that the vast majority of small business owners are very concerned about the lack of funding for inward investment, with many looking to delay or even cancel already planned expansion plans.  So why have the government taken this path?

After a campaign by a whole host of small business groups the Treasury had indicated that they were willing to listen and consider changing the new tax rules for small business – after initially simplifying the whole tax system. After much spin and bluff, nothing has happened and the government are now stuck between a rock and a hard place, unable to back track because they will losing facing, and attracting the continuing wrath of the small business environment.

Despite many promises to simplify the small business regulatory arena, the government have undone any good work of late, in one foul swoop.  A near doubling of the tax rate for smaller companies has ripped the heart out of many, coming at a time when the economy is set for a major shift downwards. What could go wrong has gone wrong for the Treasury over the last few weeks, and we are set to see more heartache for many industry leaders.

Where is the incentive to invest their own money and take a risk? Where is the incentive to fund new projects? Where is the incentive to even consider starting a new business?

Finance costs have risen substantially, taxes have nearly doubled over night and the economy is turning down.  Can there be a worse situation for the band of UK small company entrepreneurs?

Over the last few months we have seen doom and gloom everywhere, and Friday’s fall on the Dow Jones Index has further highlighted the perilous state of the US economy.  If the US were to dip into  slow down or even a recession this would effect all areas of the world, but should it stop you setting up your dream business?

While a best case scenario would always mean setting up a business when economies are growing and the good times are rolling, this cannot always be the case.  True, it may be a little more difficult to secure financing for a more adventurous business idea when the economy is under pressure, there will always be good money for a good business idea, no matter what state of the economy.  Imagine how strong you would be when the economy starts to pick up?

The internet has given more and more people a chance to follow their dreams, to set up that business they can run form home, and hopefully bring in a lucrative income stream.  The internet has also given many businesses the opportunity of exposure to other economies around the world, other than their own.  No matter how difficult the world situation is, there will always be pockets of vibrant economies, whether this be the fact there has been political change or perhaps they have joined the EU.  Not all economies will be down at the same time, and not all will be up at the same time.

However, in order to secure financing for your venture you will need to show that you have researched the market, you have the knowledge and focus.  Even if economies were in double digit growth mode, you would never secure any form of financing without a business plan - somethings never change!

Historically the UK has been, and continues to be, a hot bed of new business talent with a vast number of new businesses being set up each year, some succeed, some fail and some limp along.  However, one of the main problems which many new businesses experience is under funding.  There are a great number of business people who think that they need to cut down their starting budget to a minimum in order to be successful - this is not always the case.

In order for any business to have a chance of succeeding, the business needs to be fully funded.  True, there is always a need to cut out any surplus costs but there is no way a start up business will stand any chance of succeeding unless it is allowed to grow.  Many business people have been known to approach their banks for funding with a figure which is wholly inadequate and a recipe for disaster. You need to remember that no sensible bank would expect your business to break into profit from day one, a company needs to be nurtured like a young plant - given a firm base, encouraged to grow and watered frequently, with the end product of a blooming flower (or a successful business!).

To under fund your business from day one is a major mistake and drastically reduces your already borderline chances of success.   There are many banks who would not even consider the funding of a new business if they saw that the project was under funded.  Under funding leads to :-

· Less chance of being successful.

· Tighter trading conditions.

· Less breathing space to make the normal mistakes associated with a young business.

· A disheartened owner always fire fighting.

· Probably eventual closure

As strange as it may seem it is always advisable to ask for a little more than you expect when looking to fund a new business.  There are many highs and lows of setting up a new venture, but to experience the highs and the lows, you will need to be around - for that you need to be fully funded!