UK insolvency expected to jump by 5% in 2017
Insolvency levels in the UK will rise at a faster pace than any other major EU economy in the next 12 months, new research has suggested.
A surge of 5% is expected in 2017 according to credit insurance firm Euler Hermes, as late payments, rising input prices and an economic slowdown take effect.
The rates do not compare favourably with the situation in Western Europe were insolvency levels have dropped by 4% in the last year, or with the 1% drop noted in Central and Eastern Europe on the same time frame.
The Economic Insight, Insolvencies: tip of the iceberg report adds that Western European economies will benefit from high levels of consumer consumption and supportive European Central Bank fiscal policy.
Why insolvency is expected to rise in the UK
Bankruptcies in the UK are set to outpace every other EU economy, with more than 20,250 businesses expected to enter insolvency in the year ahead.
For context, the rise in failing businesses represents the first increase since 2010 for the UK market, while a 3% dip in insolvency rates was seen in 2016.
Business insolvencies are a result of a wider economic slowdown in the UK according to the study, with investment activity down and the value of sterling fluctuating wildly.
As a result of the latter, the report claims that inflation and input prices are being pushed up, while downward pressure is also being placed on profit margins which is leaving firms in difficulty.
This has already had an impact on businesses, as a growing number are pushing for prompt payments for goods and services in order to continue trading and limit debts.
Understanding the global picture
On a global scale, insolvencies are set to rise by 1% in the coming year – the first time in seven years that an increase has been noted.
Increases in insolvency are expected across the Latin American, African and Asia-Pacific economies, with levels set to climb by 12%, 9% and 6% respectively.
The report claims that businesses are “more vulnerable to external shocks” in 2017, and lists three factors that will drive a rise in insolvency cases
These include a reduction in trade volume and value, the domino effect of large firm’s failing and then impacting on suppliers, and a change in global financial conditions resulting from changes to US interest rates.
Businesses can experience a reversal of fortunes at any time, and should undertake an independent business review if they want to ensure a financial secure future.
By Phil Smith