The UK has witnessed a dramatic increase in business insolvencies, exceeding levels seen during the financial crisis of 2009.
According to the Insolvency Service, there were over 6,700 business insolvencies in Q2 2023. This is more than double the average quarterly figures during the pandemic and 50% higher than Q2 2019.
“Insolvencies are reaching worrying levels,” said the Centre for Economics and Business Research (Cebr). “Many businesses took on debt during the pandemic to survive. They are now struggling amid high-interest rates.”
The Bank of England has raised its main policy rate to 5.25%, up from 0.1% in December 2021. “Higher borrowing charges add to the costs faced by businesses already paying loans, and also deter investment in new projects and equipment,” the Cebr added. The Cebr is also forecasting further rate rises to 5.75%.
Weak economic growth persists, with a mere 0.2% growth in GDP in Q2 2023. According to the latest data, food services, retail, and construction are the sectors most affected, contributing significantly to the rise in insolvencies.
“Our models suggest that there could be 7,000 insolvencies per quarter on average across 2024,” said the Cebr, which also warned of a potential recession with two quarters of GDP contraction in late 2023 and early 2024.
Despite these alarming numbers, the Cebr suggests that even if the Bank of England starts to reduce its base rate, interest rates will remain high. “A recovery in businesses’ willingness to invest may take some time,” the Cebr concluded.
