Post by account_disabled on Feb 28, 2024 5:41:00 GMT
The proportion of UK non-financial companies experiencing debt service stress - those with a low ratio of profits to interest expenses - will rise to 50 per cent by the end of the year, from 45 per cent in 2022, according to a published analysis. on the BoE blog. The proportion rose to 70 per cent for medium-sized businesses, those with an annual turnover of between £10m and £500m. Under this scenario, corporate debt stress would reach its highest level since the 2008-09 financial crisis. “Higher interest rates are putting pressure on indebted companies through higher debt servicing costs,” the analysis said. "Such pressure increases the likelihood of corporate debt defaults and may lead some companies to dramatically reduce investment and employment." The UK interest rate has risen from a record low of 0.1% in November 2021 to 5.25% today. The BoE analysis used market expectations that the rate will rise to 6.1 percent. David Bharier, head of research at the British Chambers of Commerce, said: The BoE's analysis was consistent with what it had heard from thousands of small and medium-sized businesses (SMEs).
Rising borrowing costs are putting significant pressure on many smaller businesses, which after three years of economic crisis are unable to absorb the increases,” Bharier said. "Many . They will be worried because the Job Function Email Database real pain is yet to come.” Martin McTague, national president of the Federation of Small Businesses, said the analysis focused mainly on larger companies and "therefore does not show the full picture, with small businesses much more exposed to rising interest rates." than their medium and large peers. ”. One in five small businesses reported that financing is the main cause of rising business costs, according to FSB data for the second quarter of 2023, which was the highest proportion to date. The BoE said companies with low-interest coverage were more likely to experience difficulties managing their debt and warned that defaults could threaten the financial stability of the economy by reducing lenders' ability to recover.
Sharp reductions in corporate investment and employment, which occur when defaults increase, could indirectly make future economic downturns more severe, he warned. Capital Economics analyst Ruth Gregory said corporate insolvencies were expected to rise “sharply” in the coming months as a result of rising borrowing costs, a largely stagnant economy and high inflation. Separate data from the Insolvency Service, a government agency that deals with bankruptcies and companies in liquidation, showed last month that there were 6,342 insolvencies of registered companies in England and Wales in the three months to June, the highest figure since second quarter of 2009. The BoE also forecast that the proportion of distressed companies will remain below the peaks reached during the financial crisis and dotcom crash of.
Rising borrowing costs are putting significant pressure on many smaller businesses, which after three years of economic crisis are unable to absorb the increases,” Bharier said. "Many . They will be worried because the Job Function Email Database real pain is yet to come.” Martin McTague, national president of the Federation of Small Businesses, said the analysis focused mainly on larger companies and "therefore does not show the full picture, with small businesses much more exposed to rising interest rates." than their medium and large peers. ”. One in five small businesses reported that financing is the main cause of rising business costs, according to FSB data for the second quarter of 2023, which was the highest proportion to date. The BoE said companies with low-interest coverage were more likely to experience difficulties managing their debt and warned that defaults could threaten the financial stability of the economy by reducing lenders' ability to recover.
Sharp reductions in corporate investment and employment, which occur when defaults increase, could indirectly make future economic downturns more severe, he warned. Capital Economics analyst Ruth Gregory said corporate insolvencies were expected to rise “sharply” in the coming months as a result of rising borrowing costs, a largely stagnant economy and high inflation. Separate data from the Insolvency Service, a government agency that deals with bankruptcies and companies in liquidation, showed last month that there were 6,342 insolvencies of registered companies in England and Wales in the three months to June, the highest figure since second quarter of 2009. The BoE also forecast that the proportion of distressed companies will remain below the peaks reached during the financial crisis and dotcom crash of.