What will it mean for your company?

A wide-ranging new research project on the UK’s economic outlook and immediate future has come to the conclusion that the country needs more businesses to close to help solve the long-running productivity crisis. 

The Resolution Foundation, an economic think tank, states that the UK’s overall lack of economic dynamism, where weaker companies and lower productivity sectors shrink and more productive ones grow, has caused GDP to be 4% lower between 2008 and 2019 than it would otherwise have been. 

This is the equivalent of a £1,400 annual loss per household over this period which began with the subprime financial crisis.

Greg Thwaites, research director at Resolution said: “The British economy has spent the past 15 years struggling from one major crisis to another. But while many people assume this severe economic turbulence has led to major economic change, in fact the opposite is true. 

“Our economy is instead suffering from a Great British slowdown, which has hamstrung our economy. Britain needs more, not less, economic change. We need successful firms to grow, and struggling ones to shrink.”

The theory of “creative destruction” can be traced back to Marx and describes how new innovations appear and eventually replace older ones.  

This effectively means that existing businesses have to continue to innovate in order to survive but during the pandemic, the availability of bounce back loans and other finance meant that companies that would otherwise have been ideal candidates for insolvency or liquidation have been able to survive but not in any viable form. 

The latest intervention comes as the economy continues to come under stress. 

High interest rates at 5.25% which even though they were held by the Bank of England this month, could increase in future depending on other factors and are beginning to filter through to companies now. 

Coupled with continuing economic uncertainty and low productivity predicted for the rest of the year, with GDP forecast to be 0.4% for 2023 and 0.3% for 2024.   

Inflation is predicted to remain high and while slowly reducing is currently 6.7% which is still more than three times the Bank of England’s government mandated target of 2%. 

Additionally the latest economic activity indicators have shown the sharpest monthly fall in private sector activity – as measured in the purchasing managers’ index (PMI) – outside of the pandemic since the financial crisis. 

The survey showed that interest rate increases are beginning to bite with weaknesses manifesting in the key services sector along with manufacturing rates falling too. 

Total new work in the private sector fell for the third month in a row, with ongoing cost of living pressures, higher borrowing costs and cutbacks in the real estate and construction sectors.

Chris Horner, insolvency director with BusinessRescueExpert said: “The latest reduction in the PMI survey results means that all the data is increasingly pointing towards a recession. 

“With September seeing the steepest downturn since the global financial crisis of 2009 outside of the pandemic, it’s hard to find one bright spot of data that indicates a possible uptick or way around one. 

“Recessions can be both a stressful and nervous time for many business owners and directors but if they get some professional advice on how to protect or restructure their company before one officially arrives then they could be in a far stronger position.”

This is why we offer a free initial consultation for anybody who wants to better understand what options they have to strengthen their position. 

If it’s better to try and save a business or take the initiative and close it with a minimum of stress – after talking with one of our advisors, you’ll know exactly what you can do and can start weeks and months before events force you to make uncomfortable decisions you didn’t foresee yourself making.