Euler Hermes have conducted an Economic Study in which they find insolvencies in UK business will increase by 5% over the next 12 months. This prediction sees the biggest rise of any major European market, as well as the first rise in 7 years in the UK. While the UK may be bucking the trend in Europe, globally insolvencies are set to increase across the board. Many factors have been blamed for this increase, namely a slowdown in GDP growth, as well as a depreciation in value of Sterling.
What are the factors behind the increase in insolvency?
Insolvency in UK business will increase by 5% in the coming year, the biggest rise of any economy in the EU. Euler Hermes, who conducted the study, say this is thanks to economic slowdown, increasing input prices, and an increase on late payments. In contrast to this, insolvencies in Western Europe are set to fall by 4%, and by 1% in Central and Eastern Europe in the next 12 months. This is down to increased consumer consumption, a supportive fiscal policy from the European Central Bank, as well as exporters gaining from a weaker Euro Value.
The Economic Insight, ‘Insolvencies: tip of the iceberg’, predict that the UK will see the biggest increase of bankruptcies of any economy in the EU in 2017, revealing that they expect the number of businesses going insolvent will reach 20,254. This follows a 3% decrease in insolvencies in 2016, and is the first time that the figures have risen since 2010.
As well as rising input prices and increases on late payments, the company attributes the ongoing depreciating value of Sterling, on top of a slowdown in GDP growth dating back to 2015. This is predicted to culminate in increased inflation, negatively affecting profit margins. On top of this, companies are expected to see a decline in investments in the wake of the EU referendum.
CEO of Euler Hermes in UK and Ireland, Valerio Perinelli says ‘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.’
While insolvencies across Europe are set to decrease, Euler Hermes have predicted that globally the figure will rise 1%, the first rise in 7 years. Breaking this figure down further sees a 12% increase in Latin America, 9% increase in Africa, 6% increase in Asia-Pacific, and 1% increase in North-America.
Euler Hermes’ European economist, Ana Boata says,’3 main factors explain the global insolvency U-turn. First, growth in the volume of and value of trade has stalled and will linger … Secondly, global financing conditions will change in response to increases in US interest rates, and finally, the rise in the number of larger companies failing will cause a domino effect on fragile suppliers.’
While the figures look bleak compared to the rest of Europe, the rest of the world will see an increase in line with the UK.
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