According to a recent survey collected by Markit and the Chartered Institute of Purchasing and Supply, Britain’s economy is expected to show signs of strong growth in the fourth quarter. It has been reported there may be a rise of as much as 1.3 percent in the last few months of 2013. Even more promising, Markit has revealed that the general employment sector is the strongest it’s ever been. These findings have also been supported by the Institute of Chartered Accountants, who expect the same outcome later this year. The EU predicted a growth of just 0.6 percent but now their projections have more than doubled, indicating a positive year ahead. In addition, with UK unemployment figures expected to drop from 7.9% to 7.3% by 2015, it is yet another indicator of a recovering economy.
There are warnings, however, to be vigilant with these survey results, suggesting there is still an ever increasing gap between economy growth and the earning wage. The recent boom in the housing market (created by the Help to Buy mortgage scheme) has also given doubt as to how long this position can be upheld and continue to have a positive impact on economic growth.
Furthermore, if unemployment figures continue to drop, The Bank of England will need to retract this year’s earlier statement and propose a rise in interest rates.
For insolvency market watchers what does this mean?
Interest rates rises have long been expected to be the catalyst for business failures as many firms are just managing to pay the interest on their loans. These so called “Zombie Companies” are regarded as a risk to the economy’s sustainability if these firms were unable to pay higher rates. Thus it pays to not be complacent.
In addition, even in times of booming growth, there is a risk of businesses going into insolvency.
Why is that? This happens because creditors get tougher when they believe there is a better chance of getting the money back. If a business or ‘zombie company’ cannot survive, then the bank will want to call in the loan if there are profitable assets. In order to lend to growing companies, the bank may well have to stop lending to a failing one which can then lead to insolvency.
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