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Is there a need to reduce company debt before the economic recovery takes off?

By 14th June 2013March 16th, 2022No Comments

 

<br /> Adam Thomas

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Adam Thomas

For UK private companies, excluding banks, debt has fallen from 121% of GDP at the beginning of the Credit Crisis to 108% in 2012 (according to Citigroup). This reduction is certainly a step in the right direction, however at present no-one knows what the healthy level of debt is for companies to avoid being caught in a trap from which they may be unable to recover.

The same could be said for individuals who are currently benefiting from historically low interest rates to keep their heads above water and maintain interest repayments on mortgages and personal loans.

When the economy is considered to be in recovery and the Base rate is raised to control inflation, both companies and individuals may find that their incomes are not growing sufficiently quickly to cover the increase in bank interest rates.

The blame for the current situation can be laid at many doors; however with no real help offered by anyone else, it is up to the companies themselves to reduce company debt levels now to make them more manageable and to potentially avoid further problems later on. In addition, the money saved can be invested for future growth.

Over 3,700 companies in the UK have already taken the decision to free up funds and invest for the future by engaging Auditel to reduce and manage their non-core business costs. The money saved from the reduction in costs can be used to reduce bank debts and better prepare the company for when the UK economy really takes off.