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Upswing in insolvencies if Government embarks on hard Brexit, report shows

Published 13/10/2016

A decision to ditch the single market would trigger a rise in insolvencies, the report said
A decision to ditch the single market would trigger a rise in insolvencies, the report said

Britain will face an upswing in insolvencies if the Government embarks on a "hard Brexit" by breaking free of the European single market, a report has shown.

Despite business failures falling for 16 quarters on the bounce, a decision to ditch the single market would trigger a rise in insolvencies, as Brexit uncertainty increases late payments, causing more companies to go bust.

The study by trade credit insurer Euler Hermes said a "hard Brexit" would see insolvency numbers remain at 20,000 this year, before jumping 8% to 21,800 next year and rising 6% to 23,100 in 2018. The number of bankruptcies would then climb a further 15% to 26,570 in 2019.

It said insolvency levels would be markedly lower - rising 9% to 25,170 in 2019 - if Britain remained in the single market.

Ludovic Subran, chief economist at Euler Hermes, said: "The surprising resilience of the UK economy today is masking underlying issues, such as the decline in non-financial sector profitability since 2015, highly leveraged sectors and companies which are particularly vulnerable to external shocks, corporate late payment and insolvency issues, and over-indebtedness amongst consumers.

"Uncertainty in the lead-up to the UK's exit from the EU will only add to these growing problems."

Political uncertainty surrounding the EU referendum result has wreaked havoc on the financial and currency markets by ramping up volatility.

Sterling has lost around 18% of its value against the US dollar since the Brexit vote and endured a torrid time last week after investors became increasingly alarmed that Prime Minister Theresa May was opting for a "hard Brexit".

The report by Euler Hermes said the surge in business failures would eventually feed through to the wider economy, hampering confidence and slowing domestic demand.

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