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A Tough Time for UK Businesses

Posted: 03 May, 2022

Britain’s economy is losing steam as consumer confidence approaches record low levels amid the tightening cost-of-living squeeze and fears of recession. According to recent figures, consumer confidence levels are now close to those seen in July 2008 when they hit an all-time low during the global financial crisis.

The latest CBI survey has also found that optimism amongst manufacturers is falling, with output in Q1 growing at a slower pace than that seen in Q4 of 2021. Optimising is waning due to a multitude of factors. The rising price of raw materials, high energy costs, high transport costs and labour shortages are all biting manufacturers and affecting many more sectors in the UK. The UK’s big retailers and grocers including Tesco, Morrisons and the Co-operative Group have all warned of a drop in profits this financial year, citing ‘uncertainties in the external environment’, surging prices and supply chain disruption.

More worryingly, economists are now warning that the UK is dangerously close to falling into a ‘stagflation’ loop where the economy could struggle to break out of a cycle of inflation surges and growth stagnation.

With all these stresses on businesses arriving on the heels of the pandemic, it is unsurprising that the predicted ‘tsunami’ of insolvencies that never arrived during Covid has, in fact, now hit. According to the latest government figures, the number of business entering insolvency in England and Wales was 2,114 in March – more than double the 999 seen in March 2021 and 34% higher than pre-Covid in March 2019.

Some of this large number can be attributed to a catch-up effect as the Government’s measures to help businesses through the pandemic, from the furlough scheme to VAT payment deferrals to state-backed loans kept insolvencies artificially low. As that support has been withdrawn, a growing number of companies have realised they are no longer viable.

However, it’s also likely that businesses that were recovering from the pandemic and looked to be viable have now been caught by the conflict in Ukraine, ongoing Brexit issues, high inflation and tax increases that have created a perfect storm for businesses of all sizes.

For those businesses that need help to weather the storm, it is unfortunate that refinancing is becoming increasingly difficult, particularly for businesses operating in sectors exposed to more expensive and volatile inputs such as energy and food. With rising interest rates and debt becoming most costly, many businesses that had the chance to refinance over the last six months may be regretting that they didn’t. Some that took out CBILS loans during the pandemic are also now discovering that their loan is hindering them today.

TMA UK Director, Jonathan Hughes, says he has witnessed several UK businesses that, in recent months, have found themselves stuck between a rock and a hard place:

“I don’t want to be the voice of doom, but there are so many issues coming at companies now; not just Brexit related (exchange rates and supply chain), Covid and Staff shortages but there are structural issues too.

I have seen several companies where I can replace the existing finance quite easily, with more money and more competitively, but I can’t also replace the CBILS based loan.

The bank won’t release security unless it is repaid in full, so the customer is stuck. It needs money to grow, to release supplies, to recruit or restructure but it can’t access it because of borrowing taken out during the pandemic.”

But while many businesses are struggling, there are some signs of positivity. Employment growth in the UK returned to pre-pandemic levels in March and several renewables companies in the UK have reported a surge in growth as demand for green energy rises. The travel sector, too, seems to be rebounding with WH Smith announcing that it is taking on 800 more staff at its airport stores in the UK as sales have surpassed pre-pandemic levels in recent weeks.

So while the overall outlook is gloomy, if business leaders can weather the storm and look beyond the next 6-12 months, the picture might start to improve.  


TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist companies in challenging times. If you need assistance, please contact our helpline on 0844 804


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