It seems like it was only yesterday that I was writing my predictions for 2011 and here we are, already at the start of a new year and time to do it all again.
Firstly, how did I do on my debt forecast for 2011? Well, I was a bit hasty in my suggestion that the numbers of business and personal insolvency would start to rise. Actually, they remained fairly constant or even decreased slightly in certain areas. This would appear to be counter-intuitive, given the overall lack of optimism in the press and coming from trade associations and other economic indicators. There have been a number of high-profile insolvencies recently, particularly in the retail sector, and there is every chance that these will continue on a quarterly basis for the rest of the year.
My main reason for suggesting that the absolute number of insolvencies will rise was due to the likelihood of a slow increase in interest rates during 2011, which failed to materialise. I am now told by someone who understands these matters far better than I do, that the Bank of England is unlikely to raise rates before Q2 2013 at the earliest. This will delay further pain in the form of increasing debt repayments and if correct, a freeze in the current borrowing rate will assist many who are currently struggling due to poor cashflow.
And so to my rather conservative prediction for 2012: a continuation of the rates of insolvency that we saw last year, which are relatively high but not by any means cataclysmic. Unless there is some sudden shock to the economy, we can expect to see continued stagnation in the wider economy, with low growth rates and slowing inflation. This may help some businesses to keep afloat, as costs rise more slowly than previously and borrowing costs remain low. However, many businesses are seeing their cash reserves being depleted due to the current malaise in the economy and there is a real danger that, as the economy does start to recover, business failures will actually increase as companies over-trade to seize opportunities which come along. Tempting as it may be to grab new work which is offered to them, where there are no cash reserves to cope with fluctuations in cashflow it can be a dangerous strategy, so we are expecting to see a rise in failure rates as the economy improves.
But we are in uncharted waters, so watch this space.
And if you would like to discuss your business turnaround and insolvency options with a licensed expert, call me today on 01709 331300 for a free and confidential initial consultation.