Forthcoming UK insolvency statistics - the IPA comment -- Griffin and King

June 1, 2011 - PRLog -- On Friday this week, May 6, the Insolvency Service will issue the latest Government quarterly statistics for insolvencies in the UK in the first quarter of 2011. Historically these statistics have moved much in line with the economy, falling in good times and rising in bad. Currently there now seems to be an increasing divergence and commentators expect another fall in both corporate and personal insolvencies as we saw in the final quarter of 2010 despite the slowdown in the economy generally. However, this trend looks set to change. We attach some comments from the IPA ahead of the publication of the numbers.

Paddy Brazzill, President of the IPA commenting on Corporate Insolvencies:

“It is expected that the first quarter of 2011 will have shown a continued reduction in the numbers of corporate insolvencies in the UK compared to both the previous quarter and the first quarter of 2010. However, this should not be seen as a sign that all is well with the UK corporate sector. Anecdotal evidence suggests that there will be significant regional variations, with Scotland showing increased levels of corporate failures, whereas London will have shown a reduction.

There is also increasing pressure on companies which rely on discretionary
consumer spending, such as hospitality and leisure, and higher value retail items. Increased inflation, fuelled by higher oil and food prices, are reducing consumers’ ability to spend now, whilst the fear of increases in interest rates also mean that consumers would rather repay loans/mortgages quicker at current lower interest rates.

These pressures may, therefore, lead to an increase in insolvencies during 2011, compared to 2010, which as other commentators have noted has been atypical compared to earlier recessions. This may also be affected by creditors (banks and HMRC), who have been very supportive of corporates through the last two years, now deciding which companies are genuinely capable of being turned round without formal intervention, and reducing or withdrawing support where they can see no real prospect of the underlying business returning to viability.”

Charles Turner, Chairman of the IPA Personal Insolvency Committee and Deputy
Vice President of the Association offers his thoughts on personal insolvencies:

Personal insolvency numbers, (Bankruptcies, Debt Relief Orders and Individual Voluntary Arrangements), have been falling since they peaked in late 2009 and early 2010 at a run rate of about 35,000 a quarter. We would expect to see the reducing trend continue for a period despite persistent high levels of personal debt. This is partly because of a more prudent approach to consumer lending by the finance sector as well as a shift in attitude by would be borrowers many of whom have undoubtedly resisted the temptation to borrow to fund life style choices or ‘discretionary’ spending. Many have cut back and are restricting their spending to the essentials of life as well as trying to put money aside for a rainy day, no doubt influenced by the gloomy predictions for consumers so far as jobs, earning levels and tax rises are concerned.

There is an important factor which is helping many consumers to hang on and avoid personal insolvency, and that is low mortgage rates as a result of the on-going base rate pegged at a very low 0.5%. As we know, this is widely expected to increase before too long and mortgage rates will rise. If, for example, the interest rate payable on a mortgage increased from 1.5% to 3% over the next year or so, that would double the monthly payments on an interest only mortgage. That could mean borrowers currently paying £500 a month might have to find £1,000 a month to service their mortgage. This wouldn’t apply across the board of course but for many people who are currently hanging on by their finger tips, (and there are a lot of people in this category), this could well be the straw that breaks the camel’s back.

The pressing problems for households at the moment are day to day expenses – petrol, food and utility bills – at the same time as pay is being frozen for many or even reduced. Obviously that problem will be seriously exacerbated for individuals who face periods of unemployment. If income is squeezed and expenses including mortgages increase, what will households do? Many will prioritise debts, pay the mortgage and other essentials but, for a large number, there won’t be enough left to pay personal loan and credit card bills. At some point, (and the lead time will be several months), more people will turn to personal insolvency solutions. Just because we are seeing a fall in numbers at the moment doesn’t mean that all in the garden is rosy, far from it.

http://www.griffinandking.co.uk/

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Griffin and King are a leading firm of Insolvency Practitioners within the West Midlands with offices covering Dorset, Hampshire, Shropshire and Mid Wales

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