Insolvency rates already “well above pre-pandemic levels” as companies feel the effects of the withdrawal of fiscal support

Inflation has hit double digits in 19 European countries and is likely to prompt rising insolvency levels, particularly among SMEs.

Long-term inflation expectations in the Eurozone will peak in H1 2023, just above from current levels and then ease gradually, according to modelling by Oxford Economics. 

“Our conditional forecasts of inflation expectations are relatively benign in three of the four scenarios outlined in our latest Global Scenarios report. The exception is a shift to a high inflation regime, a scenario with a low probability of 10%, which sees our measure of inflation expectations peaking significantly higher and remaining above current levels until Q2 2024,” it said in a briefing.

In the UK, latest ONS statistics show the inflation has gone up to 10.1%, driven by the increasing cost of food. There are significant implications for businesses, according to Tanya Giles, head of SME business at Atradius.

UK insolvency rates up 70.5%

“This morning’s news of inflation returning to record highs will be concerning for businesses across the UK as they battle to stay above water,” she said. “Outgoings are soaring across the board, and many employers will need to make some difficult decisions in the coming weeks and months to ensure their organisations have longevity.

“The news of firms becoming insolvent will become more and more commonplace as we enter 2023. In fact, insolvency rates are already well above pre-pandemic levels as companies feel the effects of the withdrawal of government support present throughout the pandemic.

This year, 16,171 businesses were made insolvent across England and Wales, 70.5% more than the same period in 2021.

“But businesses that build resilience will be able to weather the storm,” added Giles. “It’s important for firms to act early, and we expect many are already working on recession management plans to outline how they will make efficiencies, opportunities for diversifying their income streams and protect and manage cash flow.

“Businesses also almost never go into insolvency overnight, and there are a number of warning signs suppliers need to look out for.”