Credit Managers Expect more insolvencies

Some people think credit managers are a gloomy bunch, but they’re usually pretty pragmatic by nature too. Graydon research conducted over the last week into recently announced Government public sector spending cutbacks shows that most credit professionals expect a significant rise (between 10 and 20%) in insolvencies to follow. However, at the same time, they think it is a price worth paying in order to get the country back on its economic feet, even if those company failures end up adversely affecting their own bad debt ratios.
They may well be right. Government released figures today from the Office of National Statistics show that the UK’s GDP grew by 0.3 per cent in the first quarter of 2010, but pre election government spending actually grew by 1.5% in the same period. With a contraction in official spending on its way, it just shows how fragile our economic recovery is.
I think insolvencies have been kept pretty low during this credit crisis for a number of reasons; the government’s tax deferral system, low bank interest rates,and banks’ reluctance to appoint receivers to distressed companies in order to avoid even more bad publicity all played their part. So could it be that public sector cutbacks will turn out to be the straw that broke the camel’s back? Time will tell.