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The UK’s second-largest trade credit insurer, Atradius, has reported an 18% reduction in claims from UK businesses compared to the same period in 2023, driven by a favourable consumer outlook strengthening consumer sectors.

A new report on payment default trends for Q1 2024 has also shown that ongoing economic and sector challenges are adversely affecting UK industries, leading to notable increases in payment defaults across several key industries. Significant rises in claims have been noted in the energy, fuel, metals, paper & packaging, and food sectors.

Energy and fuel

The report by Atradius indicates a 75% rise in payment defaults within the energy and fuel sector in Q1 year-on-year. This increase could be influenced by upcoming border controls set to be implemented on 30 April, potentially costing businesses up to £2 billion, raising inflation and impacting EU/UK trade. These controls add to the existing challenges in the sector following Brexit, with global conflicts also pushing consumer prices higher.

Paper and packaging

Claims in the packaging sector soared by 400% year-on-year and increased by 25% from Q4 2023 to Q1 2024, marking the largest spike in instability across all sectors. A contributing factor may be the increasing consumer and regulatory focus on the sustainability of packaging, highlighted by Amazon’s decision to eliminate single-use plastic delivery bags and promote consolidated deliveries.

Food and drink

In the food and drink sector, the largest manufacturing sector in the UK, claims rose by 44%. The sector, predominantly composed of SMEs, has been affected by the highest rainfall levels in any 18-month period since 1836, leading to reduced domestic food production and increased reliance on imports

This is likely to affect food prices and the profitability of agri-food firms, with turbulence in the sector’s supply chains reflected by a 67% increase in claims for agriculture firms in March 2024 year-on-year.

Metals, iron, and steel

The metals sector saw a 55% increase in payment defaults in Q1 of 2024. In March 2024 alone, there was an 83% increase year-on-year. Challenges such as labour shortages, green transition pressures, rising costs, and international conflicts are creating a challenging business environment. 

The iron and steel sector experienced a 20% year-on-year increase in claims for Q1, with a 100% rise from Q4 2023, following the UK and Europe’s restrictions on Russian iron and steel imports initiated in Q3 2023.

Consumer sectors

Despite the economic challenges affecting many UK and global industries, consumer confidence has improved by 14 percentage points over a year, even though 55% of consumers reported that the cost-of-living crisis had not eased. This positive outlook led to a 3.2% increase in consumer spending, enhancing stability for consumer sectors such as retail, hospitality, and consumer durables.

Retail firms saw a 46% decrease in payment defaults in Q1 2024 compared to the previous year, and consumer durables also benefitted from increased consumer confidence, with claims falling by 43% year-on-year and by 39% from Q4 2023.

Despite a year-on-year increase of 11% in monthly direct debit failures and non-essential spending reaching an 18-month low in March, Atradius’ data indicates an 18% reduction in claims for hospitality firms. 

This sector is expected to surpass its 2019 performance, aided by sustained hotel performance and lender support, as well as the continued popularity of staycations, which contributed a £3.2 billion uplift over the Easter holidays.

James Burgess, Head of Commercial and insolvency expert at Atradius, ssaid, “Consumer confidence is blossoming as we approach the warmer months, which brings renewed hope and opportunity for consumer sectors. For retailers and hospitality firms, there is a clear opportunity to ‘spring’ into a more fruitful season – if they can adapt to the changing needs and expectations of hardworking families, who will continue to prioritise value for money.

“Payment default trends give us a unique insight into the frontline of business operations, which can be quite revealing in the wake of big events, like the recent dip into recession. We work closely with firms across the UK to monitor the real-world impact of economic and sector events, so we know that the UK isn’t out of the woods yet. Business leaders must take action to respond to instability in their sector and the wider economy.

“Summer may be approaching but there’s still a financial chill in the air, and it’s been felt by many cornerstone industries. We do not expect the interest rate to fall until later this summer, which could make the next 6 months challenging for firms in vulnerable sectors. The biggest step firms can take to be proactive in bracing themselves against the impact of this is to look at where their vulnerabilities are. Often, these lie in crucial supply chain agreements, which are reliant on resilience and liquidity along the supply chain. Protecting