Britain’s economy is far from a recession but the human cost of its slowdown is getting more acute by the day. Such a big jump in the number of individual insolvencies is a grim reminder of just how tight many people’s finances are. Contributor Brian Johnson, Insolvency partner – HW Fisher & Company.
With the number of people declaring themselves insolvent now back to levels not seen since the dark days of 2012, the fragility of Britain’s recovery has been laid bare. Years of weak wage growth and cheap credit have led millions of Britons to become dangerously leveraged all over again, funding comfortable lifestyles with high levels of debt.
This approach is fine as long as the economy keeps growing. But sooner or later the music has to stop – and the sharp slowdown in economic growth seen in the first quarter suggests that day of reckoning is getting closer. If there is one crumb of comfort in all this, it is that the Bank of England will be very unlikely to raise interest rates any time soon.
So the fool’s paradise of low interest rates will continue, for now. But with the economy losing momentum and a worrying number of people falling off the cliff into insolvency, today’s data is an abrupt wake up call. The pain of Britain’s economic slowdown is already being felt on the business front line.
High street failures may be the most visible, but the construction industry has eclipsed retail as the sector with the highest casualty rate. Both industries are dangerously exposed to Brexit headwinds, shortages of staff and anaemic confidence. While construction has always been a volatile industry, it is also a bellwether of wider business sentiment. And on this evidence, 2018 is off to a disastrous start. Such a sharp increase in the number of builders going bust augurs badly for the economy as a whole.
With economic growth slumping badly in the first quarter and inflation easing, the Bank of England will be in no hurry to raise interest rates. That may at least buy a bit of time for Britain’s army of zombie companies – the weak businesses being kept afloat solely by rock bottom interest rates. Nevertheless the Bank of England will be on red alert. While it may want to notch rates back up to more normal levels, it cannot be seen to do anything that might endanger Britain’s most at risk business sectors.
