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MATTHEW FOX, PARTNER & LICENSED INSOLVENCY PRACTITIONER AT BEACON
What can I do to protect my business from the current economy? Could there be a recession ahead? Following a fall in GDP by 0.3% in April 2022 fears of a recession are growing. That is to say, two successive quarters of decline in GPD - a measurement of the size of a country’s economy that has been used for many years - and if it should turn negative and the economy goes into decline could indicate a recession. It has been predicted by The National Institute of Economic and Social Research (NIESR) that the UK will face a recession in the second half of this year. A warning has also come from the Bank of England that the UK could experience a “sharp economic slowdown.” NIESR further added that 1.5 million households are estimated to start to struggle to pay for food and energy bills causing a cost-of-living crisis. Their report predicted the Bank of England will have to raise interest rates to 2% by the end of 2022 and possibly to 2.5% next year to try and stifle increasing inflation.
The main causes currently are a combination of the war in Ukraine, growing inflation following industries re-opening following lock down and rapidly increasing energy prices. There is also a recognised shortage of stock and materials, pushing prices higher. The Monetary Policy Report issued in May said, ‘Household disposable income is projected to fall in 2022 by the second largest amount since records began in 1964’. The economy is expected to shrink by 0.25% whilst unemployment could reach 5.5% in the next few years. Other economists have indicated that it is increasingly likely that the UK will enter recession later this year. The UK will not be alone, other major economies are also likely to suffer warned the former president of the CBI, Paul Drechsler.
Latest Statistics The latest statistics issued by the Insolvency Service gave the number of registered insolvencies in May 2022 at 1,817. That is 79% higher than in the same month last year (1,014 in 2021) and 34% higher than the number registered three years previously (pre-pandemic 1,352 in May 2019). In May this year there were 1,584 Creditors Voluntary Liquidations which is 70% high than in May 2021 and 66% higher than May 2019. As regards other types of insolvencies, for example Compulsory Liquidations, there were four times as many in May 2022 when compared to May 2021. The number of Administrations was also some 96% higher than one year ago. Whilst Compulsory Liquidations numbered only 135, this is less than 50% of the number in May 2019 pre-pandemic. The pattern is similar with Administrations, 84 in May 2022, 95% higher than the prior year but 12% lower when compared to pre-pandemic levels.
