Coface Q4 2022 Barometer Panorama: An overview from our UK economist, Jonathan Steenberg

What do Coface’s new risk assessments tell us about the outlook for British businesses? Coface economist Jonathan Steenberg gives his insights into the big picture and explains the reasons behind the downgrade for the UK pharmaceutical sector.


  • Coface’s country risk rating for the UK is unchanged at A4, but the country will fare worse than comparable economies, and corporate insolvencies are forecast to rise.
  • The UK pharmaceutical sector has been downgraded from low to medium-risk.
  • India (B) and Burundi (D) have just been upgraded, while Peru (B), Ghana (C), and Haiti (E) are newly downgraded.
  • Sector risks have increased in Austrian and Italian pharmaceuticals, and there have also been downgrades in the Netherlands (wood) and Switzerland (chemicals).

Jonathan’s view:

Is the global outlook improving or deteriorating?

The outlook seems brighter than the second half of 2022 because our worst fears—energy shortages and/or further geopolitical escalations—were not realised. And yet the basic fundamentals for companies remain troublesome, with demand falling, costs elevating, and high interest rates all driven by sustained high inflation. We therefore expect the general economic picture in the large economies to be one of ‘stagflation’ in 2023, although the notable exception is India, where we expect solid domestic demand to lead to sustained growth.

After 32 downgrades last year, affecting much of Europe, Coface’s latest global risk map is relatively unchanged. We have only downgraded three countries in our latest assessments. In the cases of Peru and Haiti, this is because of a worsening political situation. In Ghana, it’s a combination of indebtedness and domestic inflation that prompted the central bank to raise interest rates.

In summary, current sentiment is less bleak, but we are not out of the woods. For instance, we cannot discount the risk of an escalation of the conflict with Russia, which could result in a complete boycott of gas and oil exports to Europe. Meanwhile, the anticipated recovery in China during 2023 could have an inflationary impact on global commodity prices.

What about the economic outlook for the UK – are there grounds for any optimism?

The UK economy avoided recession in 2022, the markets have stabilised after the turmoil following the mini-budget in September, and we expect inflation to fall gradually over the year. While yet to be approved, the new Windsor Framework announced in late February is good news for the future trading and political relationship between the UK and the EU bloc, which remains the UK’s biggest trade partner.

All that said, there’s little doubt the UK will experience a downturn in 2023. Inflation had risen to historically high levels in 2022, and domestic inflationary pressures will persist, such as high core inflation, pent-up price hikes for businesses, and anticipated higher pay rises. The Bank of England (BoE) raised the bank rate to 4% in February 2023, and a further hike is possible, after which the level is likely to stabilise for the remainder of the year.

The double whammy of high inflation and interest rates has reduced households’ disposable income, and this will have a knock-on effect on consumer spending and priorities. At the same time, the combination of high interest rates, labour and input costs, and general economic uncertainty will also have a dampening effect on capital investments, making it harder to address the UK’s long-term productivity problem. In his spring budget, the Chancellor confirmed the planned rise in corporation tax and the end of the capital allowance super deduction would go ahead but announced measures to encourage investment, including a new capital allowance scheme for a limited period. However, much of the focus was on childcare and pension reforms to strengthen the domestic labour supply. The Budget statement also acknowledged the ‘significant challenges’ facing the UK economy and public finances: the accompanying Office for Budget Responsibility (OBR) forecast that public debt and financing costs will peak next year at 103.1 percent of GDP and remain at elevated levels in the medium term.

Turning to exports, which remained below pre-pandemic levels in Q4 2022, this will be another challenging year, with trade conditions affected by the ongoing consequences of exiting the EU as well as the economic malaise affecting the EU and US, the UK’s main trade partners. We still expect the current account deficit to narrow slightly compared to 2022, but that was an extraordinary year because high energy costs had a substantial effect on imports. In addition, we anticipate a fall in imports due to lower domestic demand.

What does this mean for UK businesses?

Amid decreased demand and high operational and financial costs, we anticipate corporate insolvencies will rise across the board, continuing the trend that began in 2021. Until now, this has mainly been driven by creditors voluntary liquidations (CVLs), which are typically more common in micro and small businesses, but in the coming months, we expect a rise in compulsory liquidations and administrations as larger businesses are affected by the already-mentioned constraints as well.

While all sectors will be affected, the challenges will be most acute within construction, metals, and other pro-cyclical and energy-intensive industries. The situation is exacerbated by a contract structure that means prices are fixed several months before the projects are completed, leaving companies to work at a loss.

Meanwhile, the fall in households’ real disposable income is already leading consumers to prioritise essentials like food, fuel, and heating. Clothing was the big loser at the end of 2022, but we expect retail and hospitality to feel the impact too.

Why has Coface downgraded its rating for the UK pharmaceutical sector?

We’ve taken the decision to downgrade the sector from low to medium risk in the UK, Austria, and Italy, although it’s important to put this in context and say that the pharmaceuticals industry still carries less trade risk compared to other business sectors.

The downgrade responds to the squeeze on margins for pharmaceutical companies, who are having to bear the brunt of rising costs and price constraints over recent years. While input costs rose in the UK by 11% in December 2022, output prices actually fell by 1%. One factor is the agreement between the UK Government and the pharmaceutical industry introduced in 2019, which requires companies to pay back a percentage of their revenues if the NHS’s overall drug bill increases by more than 2%. It is expected that the rules will become stricter in the coming years as the government attempts to reduce pharmaceutical spending after COVID-19. At the same time, the cost-of-living crisis has limited consumer demand for over-the-counter medication and even prescriptions.

In 2022, retail sales fell by around 2% in volume terms (against an annual rise of 8% in the preceding five years on average), while production of pharmaceuticals fell by 3.4% (compared with average growth of 6% per year in the preceding five years). The pharmaceutical trade deficit grew by more than 150% to GBP 251 million.

Although the corporate insolvency situation within the pharmaceutical sector in the UK was still rather benign towards the end of 2022, the factors I’ve outlined here suggest that might not last.

What advice does Coface have for businesses to help them weather this storm?

With more than 75 years’ experience in navigating international credit risk, Coface has a strong track record of supporting businesses through the best and worst of times. We’ve set out ten things you can do to contain trade risk in 2023, but we’re also on hand to help steer you away from the rocks.

Alongside our credit insurance policies and collections services, we provide real-time business information about millions of companies worldwide, so you can see whether each of your customers and suppliers is an asset or potential liability. We’re especially proud of our online risk management tool, URBA360, which gives users a graphic view of non-payment risk across individual companies, sectors, and countries.

Finally, it’s worth remembering that credit risk mitigation is a joint effort. As my colleague Jack Kent explains here, it’s important that anyone with a credit insurance policy report relevant information, such as late payment incidents and adverse information, within the time limits for notification (TLN) in their contract. Not only does this ensure Coface is ready as soon as you need to make a claim, it also means we have new information to make an accurate debtor risk assessment. Ultimately, everyone benefits if we work as a team.

The full Country and Sector Risk report and risk assessment infographics are available to download on the Coface website.


Jonathan Steenberg headshot

Jonathan Steenberg,

Economist for UK and Ireland

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