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Business finance update

By Ensors Team
16th May 2022

The data release from the Office for National Statistics (ONS) on the 12 May, stating that UK Gross Domestic Product (GDP) had stalled in February and then fallen by 0.1% in March has, as you would expect, led to the general topic of conversation in the mainstream press now turning to whether a recession is truly on the way.

This ONS data for GDP confirms what most thought would start to happen, given the significant change in the inflationary environment since July 2021. The Consumer Price Index (CPI) has risen sharply from 2% in the 12 months to July 2021 to 6.2% in the 12 months to March 2022. This is the highest recorded 12-month inflation rate since February 1992, when it stood at 6.3%.

The Bank of England’s prediction is that CPI is likely to keep rising to around 10% by the end of 2022, before it then starts to reduce. In order to try and combat and control this level of inflation, the BoE has now finally increased the base rate. Whilst this is still at a relatively low level at 1% from the 5 May 2022, this is the highest level since February 2009 and experts have stated over the past few days that the base rate could reach levels of anywhere between 1.5% and 2% by the end of 2022.

The rising costs for goods and services in an economic environment that has been tough for many businesses over the past few years does now seem to be hitting home as Government covid schemes come to an end. The latest release of the monthly UK Government insolvency statistics stated that there were 2,114 company insolvencies in March 2022. This is more than double the number registered in March 2021 and 34% higher than the number registered in March 2019 (pre-pandemic).

A word of caution would be to those who took out loans under the Coronavirus Business Interruption Loan Scheme (CBILS). First port of call would be to check your terms and see if are on a fixed or variable interest rate. As the base rate starts to increase any CBIL on a variable rate will see monthly payments increase and potentially apply more cash flow pressure to your business.

As a team of corporate finance and business turnaround advisors we are now starting to see the number of enquires with requests for assistance with re-financing and cash flow forecasts increasing. Maintaining steady cash flows and more importantly knowing when the potential pinch points might occur is key for businesses as this allows them to adapt and put in plan in place before any cash flow pressures arise.

For more information or guidance, please contact our Corporate Finance team.