Q2 insolvencies offer no sign of economic storms easing

rising insolvencies indicate continued stormy ecoomic weatherThere are no signs of the pressures on businesses easing off as insolvencies in the second quarter of 2019 (April to June) continued to climb, according to the latest figures released by the Insolvency Service.

While the number of compulsory insolvencies fell, there was a significant increase in the number of CVLs (Company Voluntary Liquidations), which showed a 6.9% increase, an increase of 2.6% in the total numbers of insolvencies compared to the first quarter of the year.

Compared to the same quarter in 2018 the numbers of insolvencies have risen by 11.9%, the highest underlying rate of insolvencies since 2014 according to the Insolvency Service.

It reports that those businesses that have fared worst in the second quarter have been “the accommodation and food service industry with 74 extra cases compared to the 12 months ending Q1 2019 (an increase of 3.4%) and the construction industry with 37 additional insolvencies (a 1.2% increase)”.

The latest Red Flag Alert for the second quarter of 2019 from Begbies Traynor also emphasises an increase in businesses in “significant distress”, to 14% of all UK businesses while the average debt of insolvent companies has more than doubled – from £29,873 in 2016 to £66,226, it says.

Set this against a backdrop of a weakening global economy, as reported by the World Bank in June, in part thanks to business uncertainty because of international trade tensions.

In the UK context, the future for the economy remains completely unknown given the new Prime Minister’s Brexit strategy. This is evident from the factory output figures for July that reported the lowest levels for six years, slowing consumer borrowing, and this week the value of the £Sterling dropping to its lowest level for two years.

While low exchange rates may be a positive for UK businesses involved in exporting, making exported goods and services cheaper, they will also add to business costs on any supplies and materials imported from outside the country where the net result is that we are worse off given the UK trade deficit which was £30.8 billion in the 12 months to April 2018.  Another factor is consumers who are continuing to spend but may prefer to stay at home instead of having more expensive holidays abroad.

Given also the ominous noises about continued UK-based car manufacture, most recently from Ellesmere Port, depending on the post Brexit conditions here, not to mention the continued carnage in High Street retail, more people will also be worrying about their future job security.

It would be great to be able to say that the end is in sight but sadly, with so many “known unknowns” the economic weather outlook has to remain stormy.

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