Thousands of companies in Britain are heading for bankruptcy...for this reason!

2023-09-05 04:01:00

Factory in Britain

Britain’s economy

With growing expectations of severe economic troubles

London – Arabia Net

Posted on: September 05, 2023: 08:01 AM GST Last updated: September 05, 2023: 08:32 AM GST

Thousands of companies in Britain are heading to bankruptcy with increasing expectations of severe economic troubles, due to the high interest rates and the increase in borrowing costs, which comes after the difficult period that the financial and business sector went through during the “Corona” epidemic and the closures that caused it.

A specialized think tank in London concluded that “it is likely that about 7 thousand companies will fail every quarter in 2024, due to high interest rates and the financial pressures they caused and the entry of the UK economy into a state of recession.”

A report published by the British newspaper “The Guardian”, and viewed by Al Arabiya Net, quoted the Center for Economic and Business Research (CEBR) in London as saying that the debts incurred during the pandemic, the high borrowing costs and the cost of living crisis will lead to the decline of an increasing number of companies, especially in the two sectors. Retail and hospitality.

There were more than 6,700 commercial insolvencies in Britain in the second quarter of 2023, more than double the number recorded during the coronavirus pandemic, when many companies were largely protected from insolvency by a range of government support measures.

The center said insolvencies during this period were 50 percent higher than in the same quarter before the pandemic in 2019, and averaged 4,100 on a quarterly basis between 2015 and 2019.

The Bank of England has raised interest rates 14 times since the end of 2021, from 0.1% to 5.25%, adding pressure to highly indebted households and businesses.

The CEBR expects two more rate hikes, bringing the Bank of England interest rate to 5.75%. This means, the think tank said, that “the worst is yet to come in terms of borrowing costs, quite apart from the impact of term loans made when interest rates were lower, which are carried over at the new higher rates.”

“Looking forward, the corporate bankruptcy rate is expected to remain high as interest rates continue to rise, pushing debt repayments to unsustainable levels for some companies,” he added.

He continued: “Our models indicate that there could be 7,000 defaults per quarter on average during 2024. Moreover, we expect a recession in Britain, with two consecutive quarters of contraction in GDP in the fourth quarter of 2023 and the first quarter of 2023.” 2024″.

The think tank said that as the economy enters a recession – defined as two consecutive quarters of contraction – the bank could start cutting interest rates in an effort to stimulate demand. However, the bank indicated that interest rates are likely to remain high for longer as it fights high inflation, which currently stands at 6.8% and is still three times higher than its official target of 2%.

Last week, Howe Bell, chief economist at the Bank of England, said that interest rates in Britain were likely to follow the path of Table Mountain – referring to the flat plateau over Cape Town – meaning borrowing costs were unlikely to fall quickly.

“There can be multiple paths to get you to where you want to be,” Bell said in a speech in South Africa. “Some of them go up quickly and down quickly in what is sometimes known as the Matterhorn profile. The alternative is to keep the restrictions in place for longer and in a more consistent and assertive way.” “With table mountain interest rates. I tend to favor the latter.”