Wed, 18 May 2022 | BUSINESS NEWS
Businesses in the UK look set to come under continuing pressure during 2022, with news emerging today that inflation rose to a 40-year high last month, at a time when companies are contending with an array of challenges, including the withdrawal of government COVID-19 support, supply chain issues, the ongoing effects of Brexit and the impact of the war in Ukraine.
Last month, inflation was identified as a key factor in a 39 per cent increase in insolvencies during March 2022. While the withdrawal of government support for businesses impacted by COVID-19 and the need to repay emergency pandemic loans had long been anticipated to lead to a wave of insolvencies, rapidly increasing prices have further added to this.
New figures from the Office for National Statistics show that UK inflation reached a rate of 9 per cent in the year to April 2022, up from a rate of 7 per cent in March. Rising inflation, the cost-of-living crisis and the unwinding of government support are now being predicted to drive an ongoing increase in business insolvencies during 2022.
The news of the 40-year inflation high comes as credit insurer Allianz Trade predicts that UK business insolvencies will increase 37 per cent this year. According to Allianz Trade, sectors including construction, utilities and business services are leading this resurgence in insolvencies.
This rapid increase, Allianz Trade says, will see the UK become the first major European economy to return to pre-pandemic levels of insolvencies, after collapses were kept to a minimum due to emergency government measures and protections during the pandemic.
Allianz Trade says that it classes 17 per cent of businesses in the UK as “fragile”, according to factors such as capitalisation and profitability, compared to 12 per cent of businesses in France and 6 per cent in Germany. While the return of the UK’s usual insolvency procedures last month lead to a surge in Company Voluntary Liquidations (CVLs), Allianz Trade says that ongoing state support in France, Germany and Italy will help to keep insolvencies “artificially low” in the continent’s other major economies.
Allianz Trade Head of Insolvency Research Maxime Lemerle said: “Our forecasts paint a difficult picture for UK businesses despite the resilience shown in recent years. In a sense, this year’s anticipated uptick in insolvencies is a case of the inevitable after the extensive government support provided since March 2020, but it also shines a light on some of the macro challenges facing the economy.”
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