UK insolvencies set to jump by a third in 2020

Insolvencies in the UK are forecast to jump to 27% this year, above the global average rise of 26%, according to a new economic research report by trade credit insurer Atradius.

The UK is expected to see the largest gross domestic product (GDP) contraction in Northern Europe following the stringent national lockdown and high Brexit uncertainty. 

However, every market – except China – is expected to see a rise in business failures in 2020, led by Turkey with a 41% forecast, followed by the US and Hong Kong with a forecast rise of 39%.

The Atradius Insolvency Report analyses the economic impact of the Covid-19 pandemic and the knock-on effect on insolvencies. Every major economy, except for China, is expected to enter recession this year, with global GDP forecast to contract by 4.5%. That means this recession will be more acute in magnitude than the Great Recession of 2009. 

Atradius economists report that the depth and length of the global recession will be determined by the ability of economies to manage health regulations and either achieve exit from lockdown or “find a way to thrive with social distancing”. 

In the first half of the year, insolvency levels have not reflected the economic decline experienced in so many markets, the report said. In fact, insolvencies fell, according to Atradius research, with UK insolvencies down more than 20% year-on-year in H2 and similar patterns repeated globally. However, Atradius explains this peculiarity by changes to the insolvency regime in most countries, designed to protect companies from going bankrupt. 

According to the report, these include temporary suspensions of insolvency applications, preventing creditors from starting insolvency procedures or raising the debt threshold for bankruptcy notice.

In addition, Atradius said, governments and central banks have taken measures to counteract the economic impact on businesses such as small- and medium-business lending programmes, subsidies including furlough payments and tax suspensions. But as measures and programmes begin to expire, Atradius forecast that the brunt of the recession will be more fully reflected with a rapid climb of insolvency levels in the second half of the year.

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