The impact of COVID-19 has seen a sharp drop of £189 million in the UK’s insolvent business debt during the last quarter, according to corporate distress data analysts Red Flag Alert.
The firm’s ‘Write Off Report’ shows that total levels of insolvent business debt at 30thJune 2020 were £1.577billion, down 10.7% from £1.766bn at the end of March.
At the same time, the construction and property sectors saw bad debt rise from £363million at the end of April to £371million at 30thJune 2020. The 2.2% rise in the last quarter compares to a decline of 5.3% in insolvent debt during the same period last year.
Despite the contrasting year-on-year changes in construction and property, data analysts that compiled the Write Off Report caution that the financial effects of COVID-19 can’t be fully seen yet.
Mark Halstead, a partner at Red Flag Alert, explains: “This quarter’s Write Off figures have been skewed by the COVID-19 measures introduced by Government and positive steps quickly taken by companies during lockdown.
“This means the impact of the pandemic hasn’t yet been that pronounced on the construction and property sectors because struggling companies have been able to draw on financial support from the Government and provided with more breathing space by businesses they owe money to.
“Our financial modelling since we started records in 2004 shows that the construction and property sectors typically operate with some of the highest levels of insolvent debt. The biggest risk these sectors are now facing is uncertainty around office-based working caused by the pandemic. If home working trends cause a significant long-term dip in demand for commercial property, it could burst this debt bubble.”
Other sectors that saw rises in insolvent debt include retail, where levels during the last quarter increased by £6million (12.6%), while the manufacturing sector saw a 17.4% increase from £89.6m to £105.2m. Logistics saw a marginal change of +0.84%, taking debt levels to £62.3m at the end of June.
Mark Halstead concludes: “We’re now coming to the end of the Government’s COVID-19 support and can expect businesses to enter a more protectionist mode as they fight for survival. With this in mind, it’s likely that overall insolvent debt in the UK will see a sharp upwards trajectory over the next six months.”