New research by credit insurer Atradius unveils a significant 18% decrease in the number of claims received from UK businesses compared to the same period in 2023, signaling a positive trajectory influenced by consumer confidence. Despite ongoing economic challenges, consumer optimism is buoying sectors previously vulnerable to instability.
The energy and fuel sector, however, experienced a 75% surge in payment defaults in Q1 year-on-year, attributed to growing instability exacerbated by new border controls set to take effect on April 30. These controls could potentially cost businesses up to £2 billion, fuel inflation, and disrupt EU/UK trade, adding to the sector’s post-Brexit challenges. Global conflict dynamics further contribute to pricing pressures for consumers.
Packaging claims registered a staggering 400% increase year-on-year and a 25% rise quarter-on-quarter, reflecting growing consumer and regulatory concerns over packaging sustainability. Notably, actions by major players like Amazon to eliminate single-use plastic delivery bags have influenced industry dynamics.
The food and drinks sector, a significant player in the UK economy, witnessed a 44% increase in claims, impacting numerous SMEs. Adverse weather conditions, including record rainfall, disrupted domestic food production, leading to increased reliance on imports and subsequent impacts on food prices and agri-food firms’ profitability. Supply chain turbulence within the sector was evident, with agriculture firm claims soaring by 67% in March 2024 compared to the previous year.
Metals saw a notable 55% increase in claims in Q1 2024, driven by labor shortages, green transition pressures, rising costs, and international conflict. The iron and steel sector, in particular, faced a 20% year-on-year increase in claims for Q1, attributed to restrictions on Russian imports imposed by the UK and Europe in Q3 2023.
Amidst these economic challenges, consumer confidence has surged by 14 percentage points in a year, spurring a 3.2% increase in consumer spending and bolstering resilience in retail, hospitality, and consumer durables. Retail firms, grappling with post-pandemic uncertainties, witnessed a remarkable 46% decrease in payment defaults in Q1 2024 compared to the previous year, reflecting improved consumer demand and confidence.
Despite an 11% year-on-year increase in monthly direct debit failures and a decline in non-essential spending, hospitality firms experienced an 18% decrease in claims. The sector’s recovery is attributed to sustained hotel performance, lender support, and the popularity of staycations, which injected £3.2 billion into the economy over the Easter holidays.
James Burgess, Head of Commercial and Insolvency at Atradius, underscores the importance of proactive measures amidst ongoing economic challenges. While consumer confidence signals optimism, vulnerabilities in trade credit agreements persist, particularly in sectors reliant on stability along the supply chain. Trade credit insurance remains a crucial tool for safeguarding businesses against supply chain failures and mitigating the impact of market uncertainties. As firms navigate the path ahead, strategic measures to enhance resilience and liquidity are imperative for weathering financial storms.
