Business insolvencies in the UK reflect inflationary pressures and high energy costs, according to Allianz Trade’s chief executive

The UK economy is set to mirror the global trend and fall into recession during 2023, according to an Allianz Trade report published yesterday (2 January 2023).

The trade credit insurer put this down to tighter financing conditions, higher inflation, increased energy bills and poor confidence from consumers.

Allianz Trade’s report, entitled Economic Outlook 2023-2024: Keep Calm and Carry On, forecasts that the UK economy will shrink by 0.9% compared to the Eurozone - which it predicted would shrink by 0.4%.

Sarah Murrow, chief executive of Allianz Trade for UK and Ireland, said: “The increase in UK insolvencies reflects two things. First, the all too evident current trends of inflationary pressures, monetary tightening, energy costs, interest rate hikes and supply chain disruptions.

“Second, the reversion to and move beyond historic trends of the artificially low levels seen during the pandemic.”

Despite a general recessionary environment, Allianz Trade forcasted that  global gross domestic product (GDP) would grow by 1.9% next year due to emerging markets in Asia-Pacific, the Middle East and Africa.

Business insolvencies and recession

The combination of slower growth, higher inflation and higher interest rates has increased corporate risks, said Allianz Trade.

This has been seen mainly in the construction, transportation, telecom, machinery and equipment, retail, household equipment, electronics, automotive and textiles sectors.

Allianz Trade predicted that UK business insolvencies increased by 51% in 2022 and could increase by a further 15% in 2023.

The UK is leading the rebound in business insolvencies in Europe, alongside Spain. UK insolvencies were up 66% across the previous 12 months compared to 2021 and by 22% compared to 2019.

Allianz Trade forecast that insolvencies would rise to more than 27,100 in 2023 - an increase of 15%.

“The climb in insolvencies is driven by a sharp increase in liquidations, suggesting that businesses which were struggling either before or during pandemic lockdowns have simply chosen to close rather than attempt to restructure or sell,” said Maxime Darmet, senior economist at Allianz Trade.

Insolvency rates are still increasing in the hotel and restaurant sectors, with construction, training companies, transport and storage, financial and real estate businesses also taking a hit.

Therefore, business investment could drop next year due to lower confidence and lack of fiscal support.

Energy crisis thickens

As the war between Russia and Ukraine continues, the firm’s report also warned that UK businesses could see electricity bills increase by 31% while gas bills rise by 9%.

The report stated: “After record gas storage and energy efficiency gains helped avoid a blackout scenario in 2022, prospects for next winter (2023-2024) are limited as substitution to Russian gas imports will not suffice.

“Uncertain gas supply will create negative confidence effects and put the region’s fiscal capabilities to the test to cushion the impact of high electricity prices on firms and households. It will also compel policymakers to find ways to enhance energy efficiency and stabilise gas consumption beyond near term savings, together.”

  • Insurance Times has converted euro amounts into pounds using an exchange rate of €1.13 = £1, which was correct as of 1 January 2023.

 

 

 

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