UK insolvency levels will increase by 5%

1st February 2017

UK business failures will rise by 5% in the next 12 months as the economic slowdown, rising input prices and increased late payment risks begin to take their toll, according to Euler Hermes.

This is in sharp contrast with the rest of the continent, where insolvencies will fall by 4% in Western Europe and 1% in Central and Eastern Europe this year. Consumer consumption, support for exporters from a weaker Euro and supportive fiscal policy from the European Central Bank will help boost Western European economies and corporate profitability.

The company’s latest Economic Insight, Insolvencies: tip of the iceberg, reveals that the UK will record the largest increase in bankruptcies of any EU economy in 2017, with the number of businesses going insolvent predicted to reach a total of 20,254. The forecasted upswing in failures will be the first rise in the UK since 2010 and follows a -3% cent fall in 2016.

Euler Hermes attributes the increase in UK business failures to the slowdown in GDP growth that has been apparent since 2015, the ongoing depreciation of Sterling – which is set to push up inflation and input prices and put downward pressure on profit margins – and a decline in investment activity following the EU referendum.

Valerio Perinelli, CEO, Euler Hermes, UK and Ireland, said: “The UK will be the only major European country to see a sizeable rise in business insolvencies in 2017. While the economy has remained resilient since the EU referendum, there is already evidence of additional strains on prompt payment in the supply chain. Euler Hermes predicts that the total number of insolvencies globally will climb by +1% in 2017, the first rise in seven years and a reversal of the previous downward trend. The broad-based increase in insolvencies will continue in fragile economies in Latin America (+12%), Africa (+9%), Asia-Pacific (+6%) and North-America (+1%), while the declines in business failures in both Western and Central and Eastern Europe is losing momentum year-on-year.”

Ana Boata, European economist, Euler Hermes, said “Three main factors explain the global insolvency U-turn. First, growth in the volume of and value of trade has stalled and will linger at +3% for the next few years. Secondly, global financing conditions will change in response to increases in US interests rates and, finally, the rise in the number of larger companies failing will cause a domino effect on fragile suppliers. Businesses are more vulnerable to external shocks this year.”