A new report from trade credit insurers Euler Hermes predicts over 20,000 business failures in the UK next year.
While government support during the COVID-19 pandemic has prevented the mass landlslide until now, the recent end of government restriction against winding up petitions combined with a scaling back of government finance means business failures will accelerate.
Maxime Lemerle, Head of Sector and Insolvency Research at Euler Hermes pointed out that “massive state intervention prevented one out of two insolvencies in Western Europe and one out of three in the US in 2020. Their extension will keep insolvencies at a low level in 2021, but what happens next depends on how governments act in the coming months.”
Business failures will be 33% higher in 2022 than pre-pandemic
A similar story emerges from new economic research by trade credit insurer Atradius.
Atradius’ Insolvency Forecast warns UK business failures will reach a level of 33% higher in 2022 than they were pre-pandemic – one of the highest rates in the world.
The forecase also warns that the current supply chain bottlenecks may have a significant effect on economic recovery post-pandemic.
5 factors will set the tone for insolvency levels post-Covid
- The global momentum of the economic rebound – the UK will need to see GDP growth above +1.7% to stabilize insolvencies in 2021-2022
- The pace of withdrawal of state support
- Many fragile companies will still be at high risk of default
- The deterioration of companies’ financials, which is adding to debt sustainability issues.
- The quick recovery of business creation, since the increase in the number of businesses will mechanically increase the base for potential insolvencies, particularly in sectors where creation is highly related to meeting new needs arising from the pandemic (i.e. home delivery) but with uncertain viability