- How much has the speed of default of British companies increased?
- What are the reasons for the bankruptcy of British companies?
- What is the state of the UK economy compared to other members of the G-7?
- What is the impact of lousy borrowing on public finances?
The UK financial chaos affects the international economy. The corporate and business collapses rate in the UK has reached its highest level since the height of the global financial crisis in 2008-2009. Experts believe this is due to the increase in energy prices, the decrease in demand for goods and services, and the increase in loan costs due to successive increases in interest rates.
Bankruptcy record of companies in the UK
UK financial chaos has caused companies to go bankrupt. Data released by the UK’s Office for National Statistics (ONS) showed that the number of companies and businesses that went bankrupt in the UK and Wales in the second quarter of this year reached 5,629. This is the highest bankruptcy rate in the quarter since the spring of 2009.
Reasons for bankruptcy of British companies
There are various reasons for the UK financial chaos. The companies reported that the main reason for their business decline was the skyrocketing energy bills. In addition to the difficulty of paying the debts of companies and economic enterprises and, in general, the high cost of raw materials and production inputs due to the disruption in the supply chain.
The greater vulnerability of some businesses
UK financial chaos has hurt businesses. The figures show that these factors have affected companies in most sectors, but specific sectors, including building and construction, retail, hospitality and food, have experienced the highest number of bankruptcies. In the first half of this year, default in the construction sector accounted for 20% of all bankruptcies. The number of bankrupt companies in this sector reached 2083 companies. The wholesale and retail sector came second with 14% of all bankruptcies.
The lag of the UK economy among the G-7
UK financial chaos has stalled its economic growth. According to the official British statistics, the UK is the only country among the G-7 whose economy has shrunk compared to the period before the Covid-19 crisis, i.e. early 2020. Ahead of a meeting between the Prime Minister and Chancellor of the Exchequer and the head of the government’s independent forecasting group, the Office for National Statistics (ONS) released figures showing that instead of the economy being 0.6% bigger than in February 2020, it would be a combination of a deep recession in all times. The weak recovery of the economy has made it smaller by 0.2 percent.
Economic recession is waiting for the UK.
UK financial chaos could lead to economic recession. The better-than-expected performance of the UK economy in the second quarter of this year changed the previous estimate of a 0.1% contraction to a 0.2% increase. It has not been enough to boost the country’s GDP growth and improve the situation since the first lockdowns in 2020, which brought large parts of the UK economy to a standstill.
The impact of lousy borrowing on public finances
The UK financial chaos has caused economic analysts to view the UK’s economic future negatively. Analysts say, Richard Hughes, head of the Treasury’s independent forecasting group, the Office for Budget Responsibility, will be forced to take a hard line on the impact of more borrowing on public finances because of the new figures. This is although, apart from the UK, all major economies in the G-7, including France and Italy, have improved enough to be larger than in February 2020.
The need for an emergency increase in the interest rate
Leading economists have urged the Bank of England to implement an emergency rate hike next week to bolster the pound and reassure markets. Last week, the BoE increased the interest rate from 1.75 to 2.25 percent. The increase is expected to reach 5%, putting significant pressure on bank borrowers, including mortgage repayments, and putting more people at risk of homelessness amid a cost-of-living crisis.
Continuation of economic recession
The UK financial chaos can lead to the continuation of the economic recession. Paul Dales, an economist at Capital Economics, said: “Despite the better news on the economy’s performance in the second quarter, the overall picture is that the economy is in worse shape than we previously thought.” He added: “And that’s before the full drag from the surge in inflation and leap in borrowing costs have been felt.”
Failure to stop the increase in the inflation index
The inflation index in the UK is increasing rapidly due to the new conditions caused by the war in Ukraine, the Covid-19 epidemic and Brexit. It has reached 9.9% from the range of 2% last year, unprecedented in the previous 40 years. Experts have warned that with the continuation of the war in Ukraine and the increase in the price of essential goods, the inflation rate will reach 22%. The UK financial chaos is the cause of inflation in this country.
Depreciation of the British pound
The value of the British pound reached its lowest level in the last 37 years in response to the economic plans of the former government. Each pound against the US dollar decreased by 3% to below 1.09 dollars and reached 1.12 euros against the euro.
The stock index in the British stock market also decreased due to extensive economic changes. The depreciation of the pound is the result of the wrong economic policies of conservative governments.
The carelessness of conservative governments for the UK economy
So far, several conservative governments have come to power in the past years. Each of them has shown that they do not have the plan to improve the economic situation of the UK and get out of the recession. If this situation continues, it can destroy the UK economy. A problem that has caused some experts to worry and warn. Therefore, the opposition parties have called for immediate general elections. They believe this is the only way the UK will get out of the recession.
The resigned Prime Minister of the UK, Liz truss, intended to boost the country’s economic situation by reducing taxes and increasing the government’s debt, which is in the worst state of the last half century due to the two successive crises of Brexit and the Covid-19 epidemic. It failed to execute its programs. Now we have to wait to see what the UK economic conditions will be like during the new Prime Minister’s term.