Rate rise could leave BoE with insolvency spike

A leading accountant has issued a stark warning that an interest rate rise will leave the Bank of England ‘with blood on its hands’ as more people struggle to cope with financial difficulties

The prediction comes amid news that the number of personal insolvencies has risen dramatically in the three months to June, according to figures from the Office for National Statistics.

Commenting on the rise, David Birne, insolvency partner at chartered accountants HW Fisher & Company warned that an expected interest rate hike will only make matters worse.

‘This is a stark reminder of how many Britons are in the firing line. The Bank of England’s rate-setting grandees are determined to return interest rates to more normal levels, sooner or later. But it’s looking increasingly unlikely that they will be able to do so without getting blood on their hands,’ he said.

‘The number of people slipping into insolvency is up by more than a quarter on this time last year, and the quarterly casualty toll has risen to its highest level in six years.

The ONS found that total individual insolvencies continued to increase in Q2 2018, reaching the highest quarterly level since Q1 2012.

There were 28,951 individual insolvencies in Q2 2018, 62% of which were IVAs, 24% were debt relief orders (DROs) and 14% were bankruptcies.

Total individual insolvencies in Q2 2018 were 4.4% higher than in the previous quarter, and 27.3% higher than in the same quarter the previous year. This continues the increasing trend observed since 2015 and was the highest quarterly total since Q1 2012.

Meanwhile, the number of Individual voluntary arrangements (IVAs) in Q2 2018 rose 5.7% compared with Q1 2018. This was the largest quarterly number of IVAs since they were introduced in 1987.

While bankruptcies were down by 2.6% on the quarter, they rose by 7.2% on the year.

DROs increased by 5.4% on the quarter and by 14.3% on the same quarter in 2017.

‘With real wages still growing at almost negligible levels, many Britons’ finances are already stretched dangerously tight,’ said Birne.

‘Those who’ve been relying on credit to fund a more comfortable lifestyle – who are often the poorest and most vulnerable – are sitting ducks to interest rate rises.

‘While the economy as a whole is holding up surprisingly well, the number of people already falling into insolvency – or teetering on the edge of the abyss – suggests an interest rate rise may drive many more to the wall.’

He also warned that, while company insolvencies had declined in the same period, a rate rise may well tip some firms over the edge.

‘High profile failures of high street brands like Poundworld may grab the headlines, but there are more livelihoods at stake among the thousands of smaller retailers and builders who are steadily being driven to the wall,’ he said.

‘At particular risk are Britain’s army of zombie companies – the weak businesses being kept afloat solely by rock bottom interest rates – who could be tipped over the edge when interest rates begin rising again.’

Report by Rob Munro

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