Company insolvencies remain high as inflation stallsby
Businesses across the UK continue to struggle with the number of businesses going bust jumped 27% in June. Yet with inflation cooling, is there light at the end of the tunnel?
The number of company insolvencies continues to gather pace across the UK, with 2,163 businesses shutting their doors in England and Wales in June.
Company insolvencies were 27% higher in June compared to the same month last year (1,698), the Insolvency Service reported. The continuing high levels of insolvencies highlights the continued challenges businesses face as inflation and interest rates remain high and the cost of living crisis deepens.
Insolvency figure breakdown
Creditors’ Voluntary Liquidations (CVLs) once again made up the lion’s share of insolvencies. With 1,759 registered, the number of CVLs had risen by 21% compared to June 2022.
Driven by an increase in winding-up petitions, compulsory liquidations grew to 260 during the same period, marking a 77% increase on June 2022.
Elsewhere, individual bankruptcies saw a 29% rise from the previous year, with 643 registered. However, this number remains less than half of pre-2020 levels.
England and Wales’ figures were mirrored in Scotland, with the nation noting a 38% rise in total insolvencies compared to June 2022. Northern Ireland saw a jump in businesses going bust compared to May, however, with only 14 insolvencies, their figures are 44% lower than the previous year.
June's figures continue a growing trend in insolvencies since the pandemic. The Insolvency Service noted a peak in businesses shutting up shop in May, with 2,552 closures documented over the month. This came after a 31% drop in insolvencies during April.
However, with a similar high in March of 2,457 insolvencies, the number of businesses going bust still surpasses pre-pandemic levels and indicates that businesses are still not out of the woods yet.
A challenging environment
June’s figures highlight an increasingly hostile environment for businesses, with industry figures painting a bleak picture for UK plc.
Mark Supperstone, managing partner at ReSolve, said many businesses are “struggling to see the light at the end of the tunnel” as insolvencies continue to mount pressure – and no industry is safe in the current climate.
“We are in discussions with business across a multitude of sectors, including sport, technology, energy, retail and leisure which shows how widespread the impacts of the difficult macro environment are.
“We are also seeing increasingly larger businesses struggling due to the rising cost of debt and the ever-rising interest rates are not going to help ease these pressures any time soon,” said Supperstone.
Nicky Fisher, president of insolvency trade body R3, noted that “firms are trading in a time of cautious consumer spending and rising costs, which are hitting margins and profits hard.”
“Directors expect costs and wages to rise further as the year goes on, and if these don’t translate into more demands for goods and services, it could be the final blow for those businesses that are just managing to survive.”
As interest rates continue to rise, Fisher advised directors to “be alert to the signs of financial distress” their companies may be facing and to make contingency plans.
“Seek advice if [you] find yourself facing issues like rising stock levels, problems with cashflow or difficulties paying staff, taxes or suppliers,” concluded Fisher.
A welcome reprieve
However, the news of June's inflation figure falling more than expected to 7.9% could be seen as a sign that the pressure is easing off struggling businesses.
Nicholas Hyett, investment manager at Wealth Club, was cautiously optimistic about the news: "While one swallow doesn’t make a summer, there will be real hopes that this marks a turning point for UK inflation.
“With other indicators, such as corporate insolvencies, also suggesting the economy is weakening, the next challenge is to keep the economy from collapsing into the deep freeze and triggering a painful recession. The Bank of England may ease off the peddle where interest rate rises are concerned, but its careful balancing act isn’t over yet."