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PAE
Similar problems could arise among many So, with interest rates likely to continue to
other companies and industries. Financial rise, being able to tell if another company or
markets expect the bank base rate – which industry is at risk is important for customers,
dictates the rates on many types of loans – employees, investors and other connected
will keep climbing: it’s currently forecast to businesses such as suppliers.
peak between 5.75% and 6% by the start
of 2024. And the total value of UK business The rising cost of business borrowing
loans is also expected to rise to an estimated The average cost of new borrowing from
£513 billion as of 2023. This is £78 billion banks by private non-financial companies was
higher than in 2018, an increase of 18%. 6.36% in June 2023, more than 4 percentage
Company insolvencies have already jumped points above the December 2021 rate of
by 40% over the year to May 2023 in 2.03% (when the Bank of England base rate
England and Wales – the highest level since increases began). For small and medium-
monthly records began in January 2019. And sized enterprise (SMEs), new loan rates
significant debt problems within an industry increased from 6.86% in May to a record high
or even one firm can cause a domino effect of 7.13% in June (compared with 2.51% in
across the UK economy. December 2021).
Research shows the effects of an insolvency Companies already holding debt that’s not
or bankruptcy can spread to a firm’s trading on a fixed rate of interest could also see an
partners. Wilko started to defer supplier increase in the interest owed to their lender.
payments and extend the timeframe in which This could come as a shock since UK interest
it settles invoices last year to try to ease rates were 1% or less for more than 13 years
pressure on its cash flow as it struggled to from February 2009 to June 2022.
manage its debts.
10 September 2023
