Wilko is just the first zombie company to come a cropper

It will be harder to pick up a last-minute light bulb. You might have to rely on Amazon Prime for a quick delivery of new tea towels. And your local shopping centre will look even more dismally empty than it already does. 

There will, in fairness, be some disadvantages to the hardware chain Wilko disappearing. And yet there is no point in pretending that it is any great loss. In reality, it was one of many ‘zombie’ companies, kept alive by artificially low interest rates. Now that capital costs money again, many more will go bust. 

Wilko announced today that it was going into administration, and that its 400 stores are now likely to close, with the potential loss of 12,000 jobs. The chain had been looking for a savior for months. It is of course, terrible news for the staff, if rather less for the customers, who were hardly thronging to buy anything there. 

The important point, however, is that Wilko is just one of the first victims of the return to normal interest rates. When the Bank of England slashed rates to close to zero after the financial crisis of 2008 it might have avoided a deep recession. But it also created a lot of what economists call ‘zombie businesses’: they could borrow so cheaply they could just about stay alive, but they couldn’t grow, and they didn’t make any real money. They just staggered on. But now that capital costs 5 per cent-plus, instead of just 0.1 per cent, the financial outlook for companies like Wilko has dramatically changed. It couldn’t roll over its debts. Nor could anyone borrow lots of money very cheaply, and come in to the rescue it, as would almost certainly have happened a year ago. The result? It has finally had to close down.

It will not be the last. The accountants BDO recently estimated that ‘zombies’ could account for as much as 12 per cent of the British economy. Other estimates have put the total as high as 20 per cent. One point is certain: it is a lot. We are just starting to see the impact of a return to a ‘normal’ rate of interest on the economy. It is already clear that there will be a wave of collapses, and Wilko will just be the first of many. The economy might well be in better shape once the ‘living dead’ disappear, but there will be a lot of pain as they collapse.