The statistics released today by the Accountant in Bankruptcy show that personal insolvencies have increased while corporate insolvencies have fallen compared with the same period last year.
Commenting on the figures, Paul Dounis, RSM restructuring advisory partner in Scotland, said:
‘Twelve months have passed since the UK marginally voted to leave the EU and the financial instruments employed to hedge against the fallout of the Brexit vote are now beginning to expire; and the true impact of the decision is starting to flow through into the wider economy.
‘The deflated exchange rate has led to import costs reaching record highs and the well-publicised record low interest rate has also kept credit cheap for businesses and consumers.
‘The recent corporate insolvencies statistics from AIB highlight a 25 per cent reduction compared to Q1 in 2016-17. This could be due to businesses seeking advice early, as more businesses and lenders look for solvent restructuring advice and trading insolvencies in an attempt to maintain company value. However, there is a slight uplift from Q4 last year at 155 to 200 in Q1 as businesses continue to face adverse pressure from the rising costs of raw materials, partly due to exchange rates, and increasing staff costs.
‘In addition, personal insolvencies are up by 17 per cent for the same period last year. Earlier this week, the Bank of England reiterated the risks of recent increases in household debt and consumer spending. With record imports and low interest rates, it has never been easier for consumers to finance big purchases by debt. This is particularly evident in the motor vehicle trade where nearly four out of five car purchases are now made by PCP deals compared to one in five in 2006. In addition, outstanding credit card balance transfers and personal loans have also increased by 10 per cent in the last year; and credit scores are, on average, lower than two years ago – highlighting a potentially worrying situation if, and more likely when, interest rates start creeping upwards.
‘Consumers and business owners should remain vigilant. While interest rates may be tied to economic stability, which appears stable at the moment, any decrease in stability and subsequent increases in interest rates would start to push many more into arrears.’