Business Confidence Up, Inflation Down

20 March 2012

Before the budget tomorrow it appears that there are some signs that the economy is recovering. 

The YouGov's "Heat Index" poll which is based on thousands of interviews each month has found that confidence amongst consumers has risen to levels not seen in the last 18 months.  The survey found that respondents felt more secure in their jobs and that confidence in the housing market was high and they even said that the confidence in the government's handling of the economy was growing.  This last one seems a bit too convenient just before the budget but then again Labour do not appear to have made major gains.   In other good news it appears that inflation has fallen to 3.4% due in the main to falling energy prices although analysts had hoped that it would fall to 3.3%. 

All this is not really surprising considering how dire things appeared late last year.  Public sector job cuts underway, inflation high, big retailers failing, stock market falls and the Eurozone crisis looking dangerous. 

So if things are improving how does this affect the chances of companies facing insolvency.  In fact, as the economy does better the insolvency rate tends to goes up. So why is this.   There is a risk of what is termed "overtrading". Our previous blog on overtrading illustrates how a businesses can run out of cash as orders improve.  Also as conditions improve the banks and other creditors start to call in loans as they feel they can better supply credit to companies that are taking advantage of the upturn and are not simply treading water.