The UK Government will temporarily guarantee trade credit insurance to assist businesses having trouble maintaining cover - part of its program to shore-up economic recovery prospects following impacts from coronavirus pandemic lockdowns.

The backstop will be delivered through a reinsurance agreement with insurers, and is expected to cover domestic and exporting firms until the end of the year.

Many businesses risk having credit insurance withdrawn or premiums increasing to unaffordable levels as a result of the COVID-19 outbreak, exposing them to the risk of customer defaults.

“This country’s businesses are crucial in helping us to kick-start the economy as we get back to work,” Economic Secretary to the Treasury John Glen said.

“By guaranteeing business-to-business transactions currently supported by trade credit insurance, we will help to maintain a vital cog in our economy.”

The Association of British Insurers says it has been working closely with the Government to explain the difficult trading environment that lies ahead, and the support initiative mirrors action being taken by other countries.

“If developed in the right way, this temporary scheme will give reassurance to the thousands of businesses who rely on the security that trade credit insurance cover provides,” Director of General Insurance Policy James Dalton said.

“The scheme could help protect the supply chain, safeguard jobs and kick start the economy, boosting business confidence as we begin to emerge from the dark shadow of COVID-19.”

Agreements are expected to be in place with insurers by the end of the month, with the Government saying it will work with the industry and businesses to ensure firms are supported and risk is appropriately shared.

The temporary measure will be followed by a review of the trade credit insurance market to ensure it can continue to support businesses in future.

As of April, there was more than £171 billion ($317 billion) in UK business activity insured, covering transactions between around 13,000 suppliers and 650,000 buyers.

In the whole of 2018, £450 million ($835 million) was paid in trade credit insurance premiums to cover more than £350 billion ($650 billion) in business activity.