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Bank of England warns of insolvency crisis among SMEs

SMEs and businesses most affected by restrictions and lockdowns are at significant risk of debt, threatening widespread insolvencies in the future, according to the Bank of England (BoE).

In its financial policy summary, the BoE judged that UK corporate debt vulnerabilities have increased "modestly" partly thanks to the popularity of low-interest Government-sponsored loan schemes.

It added that indebtedness has not significantly increased among businesses as a whole, with aggregate corporate debt levels rising by 5% from Q4 2019 to Q4 2020.

Yet it noted that looming repayments of VAT and rent, as well as the unwinding of Government support such as the coronavirus job retention scheme, will add pressure to SMEs - particularly those in the hospitality sector.

"Given those additional pressures on cashflow and the planned end in September 2021 of the suspension of winding-up petitions ... the FPC (financial policy committee) judged that insolvencies were likely to increase over the next 12 months", the report said.

In Q1 2021, the Government reported a total of 2,384 company insolvencies.

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