Researchers are predicting a wave of business insolvencies will hit the UK before the end of 2022 as the government rolls back Covid support.
During the pandemic many businesses have been kept afloat by emergency government funding which spared an estimated 18,900 companies from insolvency in 2020. Euler Hermes expects 37,000 businesses to fail before 2023, with 17,100 expected to fold in 2021 and 20,540 in 2022 as the government scales back on help for businesses.
Maxime Lemerle, Head of Sector and Insolvency Research at Euler Hermes commented on the data. She said: “massive state intervention prevented one out of two insolvencies in Western Europe and one out of three in the US in 2020.”
Lemerle warned that many “fragile companies” are still at a high risk of default “notably the pre-Covid-19 ‘zombies’ kept afloat by emergency measures – and the companies weakened by extra indebtedness from the crisis,” for whom recovery will depend on the next steps taken by governments.
Worldwide the firm estimates that the global economic shock of the Covid crisis could have resulted in a 40 per cent surge in insolvencies during 2020. However, business failures fell by 12 per cent thanks to massive state interventions which temporarily stemmed the tide of closures.
Euler Hermes’ Global Insolvency Index predicts a rebound by 15 per cent year on year in 2022 as government support packages peter out.
The research also predicted that the recovery will be uneven across Europe with the UK hit harder than Germany or France, but less than Italy which is expected to see an increase in business failures of 68 per cent by the end of 2022.