Published on 2nd November 2016
Four months have been and gone since the UK voted to leave the European Union and we have seen plenty of economic developments since the vote.
The pound has fallen drastically to a three-year low against the Euro and is 18% down against the dollar, interest rates sunk to 0.25% in August with another possible cut later this month, inflation rates rose by 1% in the year to September with further rises to consumer prices expected and according to the latest survey by the Federation of Small Businesses, SMEs are feeling more pessimistic about their future for the first time in four years.
Although this paints a fairly bleak outlook during the run up to triggering Article 50 in March next year there has been some encouraging signs. UK house buying has remained fairly stable since June even if the number of homes for sale is at a near 30-year low and the UK’s construction industry seems to have made a slight recovery despite being one of the main five industry sectors to experience the highest numbers of insolvencies since 2012.
Last week, the Insolvency Service released their latest figures for UK insolvencies since the Brexit vote and it was a shame to see more corporates and individuals going insolvent in Q3 than in the previous quarter.
Figures for England & Wales
An estimated total of 3,633 companies entered insolvency in Q3 2016: a 2.2% rise on Q2 and 1.1% higher than Q3 2015. Largely this was driven by an increase in creditors’ voluntary liquidations (CVLs) with a 5.2% rise on the previous quarter and 2.2% higher compared to the same period in 2015.
For the fifth consecutive quarter, the total number of individual insolvencies rose by 6.0% on Q2 with 24,251 people becoming insolent between July - September compared to 22,884 people between April – June. The main difference between the two quarters being a 10.9% increase in the number of Individual Voluntary Arrangements and a 7.0% rise in bankruptcy orders. Worryingly, in the 12 months ending Q3 2016, 1 in 515 adults (0.19% of the adult population) became insolvent.
Figures for Scotland
Company insolvency levels in Q3 marginally decreased by 0.8% compared to Q3 2015 with an estimated 249 companies falling insolvent. Of these, 204 were compulsory liquidations with CVLs sitting at a mere 56. This is in significant contrast to England & Wales, where the number of CVLs accounted for the majority of the company liquidations recorded.
Personal insolvency figures unfortunately remained high in that there were 2,424 individual insolvencies: 8.5% higher than the same quarter last year. There were 1,113 sequestrations in Q3 2016, an increase of 15.3% compared to Q3 2015. Of these, 471 people went into sequestration via the Minimal Asset Process route.
The falling value in the pound may be having an effect on corporates reliant on imported business in certain industry sectors and there are individuals clearly requiring further financial support but it would be unfair to say that the rise in corporate and personal insolvencies for Q3 is as result of the decision to quit Europe.
The future outlook however remains unknown and projections for stability and growth will become clearer once the UK starts exit negotiations. In the meantime, corporates and individuals will both need to be vigilant over the next six months when handling cash flow issues and monthly household finances.