In this edition:
Allianz Trade expects the UK economy to avoid recession, but high interest rates, rising labour costs, and high energy costs are likely to lead to two years of almost zero growth. They predict growth of 0.3% in 2023 and 0.6% in 2024. The fallout from this is that Allianz predicts a 5% increase in insolvencies in 2024, and they are expected to stay around 30% above pre-pandemic levels until 2025. Following Brexit, COVID-19, and high inflation, many UK companies are fragile. The weakening resilience of some large firms threatens to create a domino effect, booting the insolvencies of smaller firms due to their long list of suppliers.
The Houthi attacks on shipping in the Red Sea are likely to lead to shortages of goods shipped from the Far East. UK retailer Next has warned that rerouting vessels via the Cape of Good Hope will lead to stock shortages. IKEA has also warned of delays in goods reaching their stores. Longer shipping times are leading to delays in ships returning to Asia, leading to a shortage of containers and increased shipping costs. The volume of vessels passing through the Suez Canal has fallen by 61% since the start of the attacks.
Tokio Marine HCC Underwriters Alice Bremner and Karen Crowley have published a report that reviews the construction sector in the second half of 2023 and looks forward to 2024.
After a difficult 2023, Tokio Marine HCC expects conditions in the construction sector to continue to be challenging in 2024. The construction sector experienced an increase in insolvencies in the first three quarters of 2023 from an already high level in 2022. Construction accounted for 19% of insolvencies, despite being a relatively small part of the economy.
Looking ahead, poor trading conditions, the risk of a recession, and high financing costs threaten the viability of a number of construction companies. In addition, orders are down, with the ONS data showing an 18% decrease in orders in Q2 of 2023 from 2022. In the public sector, infrastructure projects such as HS2 are being cut back, although this may change if the UK election results in a change of government.
PwC forecasts that nearly 30,000 businesses will become insolvent in 2024, with smaller firms hardest hit. The worst-hit sectors will be hotels and catering, manufacturing, transport, and storage. High energy prices, slow economic growth, and the fallout from high interest rates will all have an impact.
A recent report from QBE examines the current risk factors impacting the retail sector. These include the cost-of-living crisis, inflation, and rising energy costs. Next has warned that they will have to increase prices by 8% in the spring and summer, and Marks & Spencer has already increased prices for autumn and winter by 7%.
While high-street retailers suffer from high store costs, online retailers such as Boohoo and Asos are finding market conditions are having a negative impact on their sales as shoppers become more cautious and value-seeking.
WTW announced the appointment of Michael Creighton as the new head of trade credit and trade finance as part of plans to grow the sector and invest in servicing in 2024.
There were 6,788 (seasonally adjusted) company insolvencies in England and Wales during the fourth quarter of 2023. This was a 9% increase on the previous quarter (after seasonal adjustment) and an increase of 14% compared to the same period last year. This quarter saw the highest quarterly total insolvencies since Q4 2008.
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