BoE does not expect wave of bankruptcies when Covid support measures end
A tide of bankruptcies among UK firms is not expected when the government pulls its emergency Covid support measures like the furlough scheme later this year, BoE Chief Economist Andy Haldane has said.
Many debts racked up recently by companies are spread over long durations “which increases the chances of them being able to be paid back and therefore bankruptcy is not picking up very much from current relatively subdued levels,” Haldane said.
“But ultimately there are risks around that and we’ll need to track them through,” he said in a presentation to businesses, a day after the BoE sharply raised its forecasts for British economic growth in 2021.
Haldane’s comments stand in contrast with those working in the insolvency sector, who expect an uptick in firm failures when support measures are abandoned later this year.
Begbies Traynor boss Ric Traynor told City PM there will be a spike in insolvencies from September, likely making up for 2020’s shortfall.
“Those businesses that have been protected and still have fundamental problems are going to face formal insolvency, and that’s why we expect the number of insolvencies to increase over the course of the next year or two,” he added.
Data published last week showed company insolvencies in England and Wales fell to their lowest level in more than 30 years in early 2021 as the government’s support helped businesses to ward off bankruptcy.
Haldane also said there were “significant risks” that inflation could come in either above or below the BoE’s latest forecasts, which predict inflation will be close to its 2 per cent target in two to three years’ time, after an initial overshoot as the economy recovers from the pandemic.
“Currently we see those (risks) as being broadly symmetric, but they’re big on both sides and there’s no escaping that given where we are economically right now,” Haldane said.