Expert warns recession is looming due to Brexit uncertainty and squeezed personal finances

15-04-2019

More companies are likely to collapse in the months ahead, with reduced consumer spending unlikely to change ahead of Brexit

A combination of Brexit and squeezed personal finances is putting pressure on the UK economy and could even signal a recession is on the way, according to experts citing the latest insolvency data which shows the number of UK companies collapsing is increasing.

The number of corporate insolvencies in England and Wales rose to 16,090 in 2018, the highest level since 2014, while personal insolvencies jumped to a seven-year high of 115,229, according to the Insolvency Service.

The figures showed retail insolvencies rose by 9 per cent, with 1,211 retailers collapsing last year.

Michael Mulligan, insolvency and restructuring partner at law firm Shakespeare Martineau, said it was important to note that the 2018 figures did not take into account the “exceptionally grim Christmas trading figures” released by retailers earlier in January.

Data showed UK shops endured the worst Christmas in a decade as sales flatlined.

Mr Mulligan said that a rising number of insolvencies was almost certain in the near future.

“The UK’s economy has lost momentum, the credit cycle is over and another recession is very likely on the cards,” he warned.

“Businesses and individuals have been feeling the effects of an increasingly sluggish economy for some time now. A deadly cocktail of accessible, cheap borrowing and plateauing wages across the country has contributed to the marked rise in personal insolvencies.

“The lack of money in consumers’ pockets will have had a direct effect on company insolvencies, especially in sectors such as retail, which are already struggling. Consumer spending is down and businesses are having to fight to attract the remaining spending power that is out there.”

Stuart Frith, president of insolvency and restructuring trade body R3, backed up this analysis.

“The pressure point for businesses most frequently cited by our members is weak consumer demand,” he said.

“People just don’t have much spare cash at the moment, reflected in the rise in the number of personal insolvencies also confirmed today.

“This also spells bad news for businesses at one remove from the consumer, such as manufacturers supplying consumer products, shop-fitters, or logistics firms. Every business is part of a network and one struggling business will affect others.”

He added that uncertainty around Brexit and the future EU-UK trading relationship is “already forcing businesses to hold off on investment decisions, again affecting their suppliers and customer networks”.

“It has also prompted some companies to stockpile, putting a squeeze on cash flow and reserves,” Mr Frith said.

Source: The Independent