Economy

Insolvency report forecasts 27% climb in UK business failures

Insolvencies in the UK are forecast to jump by 27% this year, slightly higher than the global average rise of 26%, according to a new economic research report by trade credit insurer Atradius.

The latest Atradius Insolvency Report analysed the economic impact of the Covid-19 pandemic and the knock-on effect on insolvencies.

It found that every major economy, except for China, is expected to enter recession this year with global GDP forecast to contract by 4.5%, making this recession more acute in magnitude than the Great Recession of 2009.

The UK is expected to see the largest GDP contraction in Northern Europe following a “stringent lockdown” and “high Brexit uncertainty”.

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Atradius economists report that the depth and length of the global recession will be determined by the “ability of economies to manage health regulations” and either achieve exit from lockdown or find a way to thrive with social distancing.

In the first half of the year, insolvency levels have not reflected the economic decline experienced in many markets. In fact, Atradius’ research demonstrates insolvencies fell, with UK insolvencies down more than 20% year-on-year in H2 and similar patterns replicated globally.

However, Atradius explained this “peculiarity” by changes to the insolvency regime in most countries, designed to protect companies from going bankrupt. These include temporary suspensions of insolvency applications, preventing creditors from starting insolvency procedures or raising the debt threshold for bankruptcy notice.

Atradius chief economist, John Lorié, said: “Government measures have reduced the anticipated increase in bankruptcy filings in a range of ways.

“They have either shifted the threshold for filing, reduced debtor’s ability to force bankruptcy, or provided sufficient financial support to delay filings. However as the support programs begin to expire, the number of filings should climb rapidly.”

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