Sunny day still sees chilly job and insolvency news from Threadneedle Street
The report warned that there could be a lot of businesses that would see a cash flow and lending crisis arising from “companies that were highly leveraged, had a low credit rating or were unprofitable before the Covid-19 shock” being unable to access sufficient funding.
The report continued: “While the number of corporate insolvencies has remained low to date, insolvencies are likely to increase. Some companies were vulnerable at the outset of the pandemic, and may become insolvent as a result of the shock.
“Others may face challenges to their long-term viability given structural change in the economy, some of which may have been accelerated or precipitated by the pandemic.”
The bank held interest rates at their record low level of 0.1% but Bailey was more concerned with forthcoming unemployment and business failure rises.
He said it was important policy makers helped workers “move forward” and not keep them in unproductive jobs. He reiterated that coronavirus would inevitably mean that some jobs were made redundant and it was right to focus on helping people to find new jobs.
“(CJRS) has been a very successful scheme, but the Chancellor is right to say we have to look forward. I don’t think we should be locking the economy down in a state that it pre-existed in.”
While he thought the recent recovery was better than most had expected he cautioned: “We don’t think the recent past is necessarily a good guide to the immediate future.”
The Bank still expected the UK economy to shrink by 9.5% this year which while would be better than the initial assessment of a 14% contraction, would still be the sharpest recession on record and the biggest annual decline in over a century.
Despite forecasting that the economy would recover to its pre Covid-19 size by the end of 2021, unemployment was expected to almost double from the current rate of 3.9% to 7.5% by the end of the year as the various coronavirus business support schemes wind down.
Average earnings are also expected to shrink with many workers facing a pay cut or freeze this year with bonuses also reduced.
Interestingly, he noted that the forecasts are based on the assumptions that there was no second wave of Covid-19 and that there was a smooth transition to a new EU Free Trade agreement at the start of 2021 – both would be considered optimistic assessments.
Economic reports and forecasts are meant to be dry and dull documents.
When they’re dramatic then the news doesn’t tend to be good and the overwhelming mood from the latest one is still “we don’t think things are as bad as we thought they might be” as opposed to “everything’s ok”.
We keep a close eye on the current insolvency statistics and while liquidations and administrations are low, they are deceptively so.
The time to prepare and protect your home from a storm is before it arrives, not during one – and it’s the same with your company.
The economy has taken a nosedive and it might get even worse before it starts to get better so now would be the perfect time to make sure your business is as robust as it can be to withstand an uncertain second half to 2020.
Get in touch with us today and we’ll arrange a free, virtual initial consultation at your convenience.
You can outline what issues your company has to one of our experienced, expert advisors and they can work with you on a plan to address these and strengthen your business in other areas so it has the best chance of withstanding the chill financial winds when they start to blow in earnest.