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Keith was too optimistic? Or too early to tell?

In my blog of 13th January 2009 I made the following prediction (amongst others)

"My first prediction is 1.5% drop in GDP in Q4 2008, this will take us firmly into recession when results are announced by ONS on 23rd January. We should expect a fall of 3.5% in GDP this year, 2009".

Many people said to me at that time "that's a bit steep Keith". Well the news on Friday 24th July was that the economy is probably on track for a larger fall than that. Many economists are now forecasting 4.5% or more fall in GDP in 2009.

Some are forecasting growth in Q3 and Q4, clearly they seem to be basing that on green shoots. The Treasury itself predicted that the economy would contract by between 3.25 per cent and 3.75 per cent in 2009, with signs of growth in the first half of 2010. They may still be right, but we doubt it and if I am right then borrowing will rise still further than the mind blowing sums already budgeted.

There will be some doubt of course about the GDP numbers in the minds of business when retail sales are rising, mortgage approvals are rising and commentators insist there is going to be a V shaped recession. Most boards are taking a more sanguine view and cutting costs to survive. It is surely better to see the order book rising and then take on people and costs than build it on rhetoric. To that end a trade off on employment seems to be taking place.

One of the most interesting numbers discussed recently is the circa 1m people who are now in part time work having been full time employees. Many companies like British Airways, accountancy firms, law firms and services companies seem to be trying to hold off redundancies by keeping people employed, albeit on lower income levels. Smart move or deferring the inevitable? Only time will tell.

So, now that we have the half time scores for 2009 (before revisions) I will revise my forecasts to over 4.5% GDP reduction in 2009.

What of 2010 which is now only 5 months away? With the certainty of the following I cannot see 2010 being a year of much growth either:





  • Tax increases from April 2010 (already in the pipeline)
  • Increased unemployment by a further 500-750,000 people by end 2010
  • Huge credit card defaults
  • £300bn of UK distressed property debt which needs refinancing over next 24 months
  • VAT to rise on 1st January 2010 to AT LEAST 17.5%
  • Rise in Government's borrowing requirements
  • Uncertainty that will be caused by a general election which must be held in the next 10 months


So no green shoots from me!

Encouraging Company Rescue

Well we have never needed any encouragement but this is actually a serious Blog!

The Insolvency Service has issued a consultation paper as per the link above with regards to beefing up of the legislative framework for Company Rescues and Company Voluntary Arrangements (CVAs) in particular.

The fact that Government wants to encourage more CVA's is very encouraging for CVA practitioners like KSA. We have often been a lonely champion of the CVA tool. Now many larger insolvency practitioners are looking again at CVA as a great rescue approach in appropriate circumstances. Pre-pack and "plain vanilla" administrations have their place, as does administration followed by CVA.

With the news From The Times July 21, 2009 that 35% of pre-pack administrations don't comply with the rules and guidelines (SIP 16)and that the Insolvency Service is taking aggressive action against dozens of insolvency practitioners, I strongly believe CVA is the best insolvency method available for viable businesses. It is also less risky for practitioners, whilst maximising creditors interests.

Perhaps the insolvency profession will have to work harder WITH MANAGEMENT, SECURED AND UNSECURED CREDITORS and new funders(?) to ensure CVAs are used to protect and preserve companies.

So, what does the Government want to consult about? In particular, the proposals consider:

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