Lady on ipad.PNGLady on ipad.PNG

The economy is growing but businesses should beware of a sting in the tail

Better figures on GDP growth, inflation and consumer spending show the UK is turning a corner but company insolvencies are still rising. Andrew Share explains why businesses can’t afford to let their guard down and how Coface’s Business Information can help reduce the risk.

There’s been a welcome outbreak of positive economic news this month after last month’s gloomy revelation that UK slipped into a mild recession at the end of 2023. A return to modest GDP growth of 0.2% in January was driven by increased consumer spending and output in the services and construction sectors, while the rate of inflation has eased compared with a year ago. Businesses will also have found some reasons to be cheerful about the reduction in NI and other budget measures like increasing the VAT registration threshold and extending the expensing and Recovery Loan Schemes.

According to the latest forecasts by the Office for Budget Responsibility (OBR), the UK economy will ‘pick up to 0.8 percent in 2024 as interest rates fall and real household incomes recover’ (this is slightly above Coface’s own prediction of 0.5%). Although it highlights uncertainties in the Middle East, the OBR also expects inflation rates to continue to fall and for interest rates to come down more quickly.

These confidence boosters come after a particularly difficult spell for businesses but there’s a sting in the tail: company insolvencies are still rising. The Insolvency Service statistics for February show there were 2,222 company insolvencies across the UK countries, with England and Wales (2,102) up by 17% on February 2023 and higher than before the Pandemic while Scotland was up 9%. While the initial increase was driven by voluntary liquidations, we’re now seeing more compulsory liquidations and administration proceedings, including big names such as Ted Baker and The Body Shop (year on year these were up 35% and 54% respectively in England and Wales).

As a ‘lagging indicator’ company insolvencies typically take longer to respond to improvements in the economy. And that’s a particular concern when you also take into account the debt burden that many companies are already carrying which will continue to bite now that the era of low interest rates is over, leaving some on the brink.

Lady on ipad.PNG

The impact is already being seen in the latest trade credit insurance statistics from the Association of British Insurers (ABI). In Q4 2023, the gross claims paid by trade credit insurers was £69million, up £19m on the previous quarter with domestic gross claims paid up by 70%! The total number of claims notified during Q4 increased by 2% on Q3 which the ABI says was also driven by domestic claims, especially in the construction sector.

Amid this prolonged period of high trading risk, it’s essential that your business has access to timely and accurate business intelligence to boost your credit management strategy. If you’re currently relying on credit reports based on potentially outdated filed accounts and the industry grapevine, this is the ideal time to get in touch with Coface’s Business Information team.

As well as holding the latest financial, trading, fraud information and late payment Information on 180 million+ companies worldwide, we offer a comprehensive range of powerful risk analysis and decision-making tools that put you in the driving seat.

That includes URBA 360, our powerful new interactive risk management platform that enables you to monitor the vital signs of current and prospective business partners from your own online dashboard. You can instantly see our Debt Risk Assessment (DRA) score for a customer or supplier which measures their probability of default in the next 12 months, along with our credit opinion, their key financials and relevant country and sector risk assessments. URBA 360 enables your business to make fast, informed decisions about risks and opportunities, backed by Coface’s risk analysts and underwriters deployed globally, close to your customers and opportunities.

It’s never been more important to protect your business

The UK looks likely to emerge from recession this quarter and we may be poised for an encouraging cut in interest rates but the long tail in insolvencies means your business will still be vulnerable to a sudden financial shock from bad debt or supply chain disruption. It’s important not to be complacent about these risks if you want to make the most of new opportunities.

Go deeper with the full country risk assessment

Discover our solution