The latest data from the Insolvency Service and Companies House shows that the number of firms going bust in England and Wales increased by 16% last month compared to the same time last year. The total of 2,191 company insolvencies in July serves as a reminder that many businesses are still struggling to recover from the financial impact of high inflation and borrowing costs, despite growing optimism about the UK’s economic outlook.
While this figure represents a 7% decrease from June’s total, it is still significantly higher than pre-pandemic levels and those seen in the years following the 2008/09 financial crisis. Rebecca Dacre, a partner at advisory firm Forvis Mazars, emphasized that this data highlights the fact that many businesses are still far from achieving full recovery. She stated, “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.”
Sarah Rayment, head of global restructuring at finance firm Kroll, urged caution in interpreting the figures, stating that while there is no need for “alarm,” there are reasons to be optimistic when looking at the big picture. She added, “However, green shoots do not immediately translate into good news for all companies. Borrowing costs are still high and many companies are looking to refinance in the coming months. 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.”
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According to the seasonally adjusted figures, there were 320 compulsory liquidations in July, the highest monthly total since before the pandemic. On a separate note, individual insolvencies also saw a rise of 24% year-on-year in July, with a total of 10,524 cases reported. This included 634 bankruptcies, 4,163 debt relief orders, and 5,727 individual voluntary arrangements. While this figure is similar to June’s total, it is still below pre-pandemic levels.
The Insolvency Service and Companies House will continue to monitor the situation closely as the UK economy navigates through the ongoing challenges brought on by the COVID-19 pandemic.
