Credit Management June 2018

EXCLUSIVE REPORT
State of the Nation
An in-depth analysis of the health of the UK economy.
AUTHOR – Nalanda Matia
AMONG fears that Brexit
could damage the United
Kingdom’s economic
growth, the past few
quarters did show rising
global concerns regarding
the country’s overall credit health.
Although there remains a general pattern
of imbalance within the growth structure,
the UK economy has shown pockets of
growth, despite the disquiet.
For example, according to the Office
for National Statistics, overall UK GDP
grew by 0.4 percent in the third quarter
of 2017, followed by 0.5 percent in the
final quarter of the year, slightly topping
consensus estimates. A look into the
vertical specific view shows a wide range
of growth by vertical with Manufacturing
and Professional, Scientific and Technical
activities staying on one end of the spectrum
registering quarterly growth rates of one
percent and above in the final quarter of
2017. The growth in Manufacturing could
be driven by accelerated global growth
that improved UK exports. Agriculture
and Other Natural Resources (including
Mining) and Construction remain on the
other side of the spectrum with these
verticals registering negative growth.
Clearly there remain some headwinds for
the British economy to contend with in
order to correct the imbalance among the
major verticals.
Moving from economic growth
towards business deterioration metrics
provides a similar account. A look at
business liquidations over time shows
a turbulent environment over several
quarters following the 2008-09 recession,
with stabilisation and improvement
commencing mid-2013. The last few
quarters highlight a deterioration in
business liquidations, signalling some
stability in the business environment
compared to the last year. Looking at
the same metric by vertical displays
some pockets of weakness on this
front – the Utilities and Transportation
sector shows the highest increase in
business liquidations. On the other
hand, the Government, Agriculture and
Manufacturing sectors demonstrate the
highest levels of deterioration in business
liquidations. It seems that although the
Agricultural sector did not register an
impressive growth in terms of GDP, the
underlying environment for business
stability in the sector may have improved
over the past year.
For a view into the Delinquency and
Failure Risk perspectives, we refer to
Dun & Bradstreet’s UK Failure Risk and
UK Delinquency scores. These scores
represent the probability that a business
will experience significant risk of
operational stress or severe delinquency
within the next 12 months and classifies
them into low and high-risk segments.
The chart shows the percentage of
businesses for each major sector that
fall into the high-risk categories of both
the Delinquency and the Failure Risk
scores. These businesses are identified as
facing extreme risk in the next 12 months
from both operational stress and severe