The Autumn Budget released yesterday was a mixed bag of business and personal changes, purportedly set to ease pressure in the economy and of course help smooth the Brexit transition. The key statistic of interest to businesses however are the growth forecasts, which were revised down from 2% to 1.5% for 2017, with 2018, 2019, 2020 and 2021 revised down to 1.4%, 1.3%, 1.5% and 1.6% respectively.
Growth is a key proponent of economic performance as a whole, but it can also be used to model and predict likely insolvency figures and therefore bad debt for businesses. Statistically, in a stable, growing economy, insolvencies run at 0.5% of all companies going bust each year, but this number goes up if growth is less than 2%. When aligned with the revised growth estimates reported in the Autumn statement, five years of sub 2% growth means higher levels of insolvency.
Much of this can be linked to the combination of growth sub 2%, with inflation of over 2%, delivering a continuing squeeze on real income. A small amount of this squeeze will be offset by the rise in personal tax allowance, and the National Living Wage, but the latter will also serve to put pressure on businesses, and could result in a spate of redundancies in a turbulent marketplace, deepening the depression of the economy.
Tom Rolfe. Director, The Channel Partnership comments “We have enjoyed a couple of years of small growth, which has provided a positive outlook for many businesses, and a return to order within the economy. Unfortunately though, uncertainty over Brexit terms depresses business investment and means that the UK is bucking the trend of other European economies, seeing a slump in growth when we should be seeing a boom. It’s a mess. At this stage, there’s no point complaining about it; all businesses will have to find a way to succeed despite the challenges.”
With the possibility of more businesses failing in the coming years, managing credit risk will become more important than ever, to prevent a domino effect of one company failing as their customer fails and so on. Credit insurance is one option available to businesses to help lower the risk, and ease the pressure in a turbulent marketplace.