Insolvencies forecast to keep rising before situation improves

UK insolvency levels could rise even further this year, despite signs of economic improvement, according to a new forecast. Insolvencies rose to a 30-year-high in 2023, with around 25,000 companies collapsing last year, and 2024 appears set to see a significant increase on this figure.

According to a new forecast from think tank the Centre for Economics and Business Research (CEBR), 2024 could see in excess of 8,000 insolvencies per quarter. While the UK economy is showing significant signs of recovery, with interest rates having been kept level at the Bank of England’s past four policy announcements and inflation falling, these improvements are unlikely to be felt by the huge number of struggling companies in the UK.

The CEBR noted that the improvement of the UK economy and UK companies in financial distress has a lag of “about 18 months”, meaning that it will be well into 2025 before struggling companies begin to benefit from the effects of the stabilising economy. In the meantime, the CEBR says that approximately 33,000 UK companies are on the brink of collapse, many of which will have been struggling since the COVID-19 pandemic.

While the post-pandemic period saw many businesses return to growth, the subsequent global economic slowdown and the UK’s ongoing cost-of-living crisis have had a hugely negative impact on consumer spending and the overall economy over the past two years, pushing companies into even deeper problems.

In September, the CEBR forecast that there would be around 7,000 insolvencies per quarter this year, but it has since revised this figure up to 8,000, citing the 6,800 company collapses seen during Q4 2023 and the worsening outlook for the UK’s commercial property sector.

According to the CEBR, the commercial property market is in “tougher straits than we previously thought and is likely to push harder for rent recovery”. These issues have put the sector alongside other industries that are driving high insolvency levels, most notably construction, retail and hospitality.

CEBR Deputy Chair Douglas McWilliams, however, challenged the widespread notion that the majority of company collapses would be among “zombie companies” - which he defines as companies with unmanageable debt piles that are just about able to continue trading and service interest bills, but collapse when interest rates increase.

McWilliams argues this is not the case in the UK, “where research indicates there tends to be a negative correlation between growth and borrowing”.

“Instead,” McWilliams says, “the companies going bust in 2024 and 2025 are largely ones that got into financial trouble in the Covid years and have never really escaped. Traditionally, construction companies are most at risk of going into liquidation and this has not changed. But both the retail and the hospitality sectors have nearly caught up with construction in terms of insolvency numbers in 2023. This is not surprising given the hits that they suffered during COVID.”


Find out more about the UK's soaring insolvencies during 2023

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