2024 may spell trouble for the UK business landscape. With predictions pointing towards a massive surge in insolvencies, the alarm bells ring louder for SMEs, micro-businesses, and budding entrepreneurs.
But what’s precipitating this storm?
Past Insolvency Trends
Historically, insolvencies hovered around 4,100 each quarter between 2015 to 2019.
Then came the pandemic, where support measures acted as a buffer, protecting many from the brink of bankruptcy.
However, a stark rise was noted in the second quarter of 2023, with insolvencies jumping by 50% compared to the same period in 2019.
Interest Rates and Their Impact
The Bank of England’s policy of ramping up interest rates since 2021 has been both a saviour and a strain.
While intending to combat high inflation rates, the move from a modest 0.1% to a whopping 5.25% has tightened the noose around already debt-laden businesses.
With indications pointing to a potential peak of 5.75%, SMEs need to brace for even tougher times.
The Forecast Ahead
The Centre for Economics and Business Research warns of choppy waters. Their projections suggest an average of 7,000 insolvencies every quarter throughout 2024.
Alongside this, the UK might be on the precipice of a recession, with potential back-to-back GDP contractions towards the end of 2023 and the start of 2024.
So, what’s the Bank’s plan amidst these looming dark clouds?
While there’s talk of potentially cutting interest rates to stimulate demand, the overarching strategy appears to keep interest rates high to tackle the 6.8% inflation – a figure alarmingly higher than its 2% target.
Advice for Small Businesses and Entrepreneurs
It’s not all gloom. Here are some lifelines for businesses to consider:
- Budgeting and Debt Management: Reassess your financial plans. Prioritise debt repayment and explore lenders with flexible funding solutions for SMEs.
- Diversify Revenue Streams: Don’t rely on a single source of income. Branch out and diversify.
- Stay Informed: Regularly monitor economic trends and adapt your business strategy accordingly. Engage with financial experts if possible.
- Explore Government Schemes: Look into available governmental assistance schemes or grant opportunities.
Small businesses access unsecured, fast funding from Got Capital. As an alternative lender, Got Capital offers financing solutions specifically designed for and catered to the needs of SMEs.
