Whilst we await the effect of impending changes to the way we live after 19 July, the Bank of England Report issued this morning stresses there will still be a need to offer support after Covid support is wound down, especially as the current wave continues to spread.
The Financial Stability Report confirms the position of the banking system is such that, as government support is withdrawn, (the end of furlough and repayment of emergency business loans falling due), the banks are in a good position to offer support. However, this will be by means of loans rather than subsidies and grants.
This may well be an issue for small businesses on which, we are told, that the UK economy is founded. It is of concern that whilst corporate “debt vulnerabilities” have increased modestly during the pandemic, the effects have been felt more substantially among smaller firms.
Indeed, the report shows debt levels of small businesses rising by around 25% since the end of 2019 compared to just 2% for larger businesses! Whilst these businesses benefitted, and in many cases were saved government emergency loans, there is a clear danger of rising company failures as support schemes end and loans become due.
As evidence, it will probably come as no surprise that in sectors such as hospitality, almost 12% of firms were already either behind on payments or had defaulted on loans as of Jan 2021.
How many will need to enter formal insolvency recovery processes such as Administration (pre-pack or otherwise) or Company Voluntary Arrangement? Sadly, how many others will have no alternative other than to cease trading and maybe enter liquidation, with consequential losses to suppliers and personal hardship for employees facing loss of employment?
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Source: BBC News