U.K. Insolvencies Expected to Drop this Year, but Underlying Conditions Still Cloudy

Insolvencies in the U.K. are expected to decline by 7% this year, but a new report from credit insurer Atradius suggests the drop is not due to any underlying economic resilience but a statistical adjustment from the high rate of insolvencies in personal service companies (PSCs) in 2016.

In 2016, the U.K. Insolvency Service noted a 15% year-over-year increase in compulsory liquidations and creditors’ voluntary liquidations in England, while cases in Wales grew to 14,810, Atradius analysts said. The bulk of this increase was due to changes to claimable expenses rules that led to the liquidation of almost 1,800 PSCs in the fourth quarter of 2016. Without these PSC liquidations, the insolvency rate dropped to 1% year-over-year.

This year, the overall insolvency rate is thus expected to drop by 7% as these types of liquidations become less prevalent, Atradius said. However, business insolvencies in industries like retail are expected to increase due to the uncertainty surrounding Brexit. Retail sales, year-over-year, are expected to decrease to 1.2% growth in 2017, compared to 2.6% in 2016. Overall GDP growth is also expected to fall to 1.6% this year, compared to 2.0% in 2016.

Meanwhile, an April small- and medium-size enterprise (SME) Risk Index from Zurich found 52% of Britain’s SMEs are owed an estimated $57.8 billion in late payments. The index, which culled the results of over 1,000 SME owners, found 21% are owed more than $32,000 and almost 10% are owed more than $129,000.

Nearly two-thirds of those who recorded late payments typically saw delays of more than a month on payments already 30 days overdue, while 45% saw payment delays of up to three months, Zurich said. Twenty-four percent of survey respondents said late payments had caused their businesses to overdraft in the past, while 39% said late payments have had a significant impact on cash flow.

– Nicholas Stern, senior editor

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