UK company insolvencies over the past year have exceeded levels seen during the global financial crisis in 2008-09. According to figures from the Insolvency Service, 25,551 UK companies fell into insolvency in the year up to the end of July 2024, 1.4 per cent higher than the 25,189 insolvencies recorded during the same period from 2008-09.
The latest figures illustrate how businesses have been hit by sharp increases in interest rates over the past three years. While interest rates have been rising since 2021, the direct impact on businesses has been relatively subdued until the past year.
Numerous factors have led to surging business failures since 2021, including the end of government measures to protect businesses from insolvency during the COVID-19 pandemic and rising energy costs following the start of Russia’s war in Ukraine in 2022.
However, the latest figures are seen as being largely the result of the impact of high interest rates and the increasing strain they are having on corporate finances. Sectors such as retail and hospitality have been among the worst affected, as the cost-of-living crisis continues to drive down consumer spending.
Forvis Mazars partner Rebecca Dacre commented: “The latest insolvency figures are a strong reminder that many businesses are still a long way off from recovery. Despite initial signs of improvement in the economy, some sectors are still experiencing severe difficulty as interest rates remain high.”
"Falling consumer spending during the cost of living crisis has also made it incredibly difficult for some businesses to survive. The retail and hospitality sectors have borne much of the brunt... unless we see a stronger economic recovery, it is likely we will see more companies pushed towards insolvency."
Earlier this month, the Bank of England lowered interest rates for the first time since March 2020, with the base rate dropping from 5.25 per cent to 5 per cent, with further cuts considered likely this year.
However, the impact of improving economic conditions on the many UK businesses still in financial distress is unlikely to be felt for some time yet, with the likelihood of high insolvency figures persisting for the foreseeable future. This was demonstrated by the insolvency figures for July 2024, which stood at 2,150, 25 per cent higher than the same month a year earlier (albeit down from 2,349 in June 2024).
Despite the probability that the UK will continue to see high insolvency rates, there have been signs that economic instability is easing, with growth of 0.7 per cent and 0.6 per cent during Q1 and Q2 2024, respectively.
Sarah Rayment, Head of Global Restructuring at Kroll, warned that “green shoots do not immediately translate into good news for all companies” and pointed out that borrowing costs remain high, with many companies looking to refinance over the coming months.
Rayment added: “The question is whether they will have enough financial headroom with higher borrowing costs or whether their lenders will give them enough leeway. It is perhaps more likely that we will see more restructuring activity in the near future.”
Find out more about UK insolvency trends
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