Significant spike in UK insolvencies is forecast
It will be of little surprise that the number of UK and global insolvencies is set to increase in 2020, as the effects of Covid-19 continue to bite.
Trade credit insurer Euler Hermes announced in July that it expected business insolvencies in the UK to rise by more than 43%, suggesting “the impact of COVID-19 hits Britain harder than other developed economies”.
They stated there would be a global compound rise in insolvencies of 35% and a U-shaped recovery “similar to the intensity level of the 2008 financial crisis”. However, they also acknowledged a weak glimmer of hope and forecast that global GDP growth is likely to return to pre-crisis levels at the end of 2021, but not to expect worldwide trade returning to pre-crisis levels before 2023.
Economists at credit insurer Atradius have predicted a recovery could begin as early as this year, and through into 2021, with a baseline prediction of global GDP rebounding by 5.7% in 2021. But this depends on a range of factors – including a successful vaccine in the near term, limited lockdowns, low oil prices, stable financing costs and the US/China trade war remaining at a standstill.
They have also, however, announced a forecast that global corporate insolvencies will increase by 26% in 2020. They see the United Kingdom as a stand-out country in Northern Europe with the highest GDP contraction, with Brexit uncertainty compounding the issues caused by the pandemic.
They say the likely increase in insolvencies at home is largely attributed to the severe economic contraction, albeit their forecast is lower than during the recession of 2009.
The UK Government’s Trade Credit Reinsurance Scheme is now live with many of the biggest insurers, including Atradius and Euler Hermes, signed up. We believe this will give UK businesses confidence to offer buyers credit terms and is a welcome kick-start for some sort of economic recovery.
For more information on the reinsurance scheme and how it works, please give us a call. We have already seen limits applied on current contracts as well as retrospectively reinstated for our clients.