From Chaos to Control: Effective Cash Flow Management
Monitoring, analysing, and optimising the inflow and outflow of cash within a business is a vital component of any turnaround. It involves effectively...
More Bear than Bull
The finance and insurance sector (financial services, insurance, reinsurance, pension funding and trusts) has had to cope with the struggles associated with the pandemic in 2020 and 2021 as well as address the impact of the UK leaving the EU at the end of the transition period in December 2020. In 2022, 373 insolvencies are forecast for the sector, 29% higher than in 2021 and 12% higher than in 2019.
What is happening in the wider economy?
The latest UK monthly insolvency data shows that there were 1,069 insolvencies in the UK in May 2021, up from 972 in April.
According to data from the Office for National Statistics (ONS), the UK economy grew by 2.3% in April. This is the fastest monthly growth rate since July 2020, in the aftermath of the first national lockdown. On 12th April, Step Two of the Government’s roadmap out of lockdown was implemented, which allowed non-essential shops, outdoor hospitality venues and personal care premises to re-open. This was facilitated by the UK’s progress in lowering Covid-19 infection rates and vaccinating the population. Despite the strong performance of the economy in the Spring, April’s GDP was still 3.7% below its level in February 2020, before the pandemic first took hold in the UK.
Considering the wider economic environment for businesses, the strong economic expansion in April means that UK GDP is now higher than it has been at any point since the initial onset of the pandemic. However, faster economic indicators – such as card spending data – suggest that consumer activity may have started to come off the boil during in the second half of May, while rising Covid-19 infection rates have meant that the remaining restrictions will not be lifted until 19th July, four weeks later than previously planned.
How are businesses being supported?
The Government has recently indicated it will extend the suspension of serving statutory demands and restrictions on winding-up petitions where unpaid debt is due to Covid-19 for a further three months to 30 September 2021. The Coronavirus Job Retention Scheme (CJRS) is also set to terminate at the end of September.
The Government also announced in June that the commercial lease forfeiture restrictions would be extended for another nine months and will now end in March 2022. Under these restrictions commercial landlords are prevented from forfeiting commercial leases or evicting their tenants for non-payment of rent.
What is the outlook for the finance and insurance sector?
The finance and insurance services sector usually see insolvencies stand within the range of 10 to 45 each month. Within this, there is a fair amount of volatility, which is reflected in our forecast.
As businesses continue to be protected from insolvency by the Corporate Insolvency and Governance Act 2020, the number of insolvencies is expected to be low in May and June, at 15 and 12, respectively. Then, in Q3 2021, a total of 90 insolvencies are expected for the sector, an uptick driven by demand factors rather than any policy changes. However, as Government protection against insolvencies is removed at the end of September 2021 (three months later than previously planned), the sector is expected to gradually see more insolvencies.
In Q4 2021, the sector is expected to be relatively shielded from the end of the period when statutory demands will be void if issued against a company. However, insolvencies are expected to see a notable rise in early 2022, with 40 insolvencies forecast for January. In 2022, 373 insolvencies are forecast for the sector, 29% higher than in 2021 and 12% higher than in 2019.
There remains a considerable amount of uncertainty on the impacts of the UK leaving the EU, and the deal agreed upon leaves much undecided. The UK could decide to opt for more deregulation and not be granted equivalence by the EU in the future, impacting the ability of the industry to deal with the bloc. Our forecast assumes that UK finance businesses will try to make up for the potential loss in EU businesses with expansion into other global markets – a process that will take at least 18-24 months to yield results.