The cost-of-living crisis continues to impact corporate Britain as insolvency appointments soar to their highest levels for over thirty years.
However, official data reveals a crisis that could exceed insolvency rates of the 1990s with an estimated 35,000 businesses potentially going bust over the next 12 months based on the current economic trends.
More than the COVID-19 induced recession of the 2020s and the financial crisis of the late 2000s, over 25,000 businesses in England and Wales have already faced the daunting scenario of entering liquidation last year as insolvency rates increased by 13.7% on 2022.
This figure approaches similar levels to the severe economic recession of early 1990s in which over 26,000 business went insolvent as inflation peaked to over 10%.
Since 2021, corporate insolvencies rates have tracked on average 33% higher month-to-month from (Q1) 2021/2022 to (Q4) 2023/24 compared to (Q1) 1989/1990 and (Q4) 1991/92. If this trend continues, the first part of next year (2025) could see nearly 11,000 businesses going bust based on the current economic situation and insolvency trends.
This could see an estimated 34,832 businesses become insolvent without action from the government over the next 12 months – a crisis for British businesses and the economy.
Across all sectors in England and Wales, an average of 101.6 businesses appointed an insolvency practitioner per 10,000 registered entities in 2023, three times the levels of 2019 at just over 30 (per 10,000) when the economy had low inflation and interest rates, combined with steady economic growth.
All sectors of the economy saw corporate insolvency rates rise by nearly 14% compared to 2022, largely in heavily consumer-driven businesses of hospitality, manufacturing, construction and retail that account for an estimated £166 Billion of GDP – a third of the UK economy.
Hospitality businesses were twice as likely to enter administration in 2023 than any other sector, with nearly 3,800 closing down over 12 months, an increase of nearly 40% from 2022. Manufacturing and construction also fared poorly as these sectors continued their downturn, with over 6,000 businesses in total going bust last year.
The UK retail sector appeared to have weathered the economic climate better, yet still suffered more than 10,000 stores permanently locking their doors with the loss of 120,000 jobs last year. This excludes the recent fall of the cosmetics retailer The Body Shop in which hundreds of workers are facing redundancy and almost half of its 198 stores are expected to close.
Perpetuated by COVID-19 pandemic, the negative impact of Brexit, international conflict and supply chain issues, businesses have operated through a tumultuous economic climate in 2023, with 2024 and early 2025 likely to remain challenging.
The post-covid economy has seen the cost of goods for businesses increased by 13%, wages rose by 10% and the Bank of England base rate ticked up to its current high of 5.25%.
Simultaneously, this squeezed consumer budgets and reduce demand for goods and services as households tackled rising inflation – peaking at 11.1% in October 2022 before falling back to 4.2% this year – higher food and rental costs as well as gas prices soaring by nearly 60%.
Vince Green, Crowe’s Head of Recovery Solutions, said: “While inflation is decreasing slightly faster now, the similarities between current economic climate and those of the early 1990s suggest a once in a generation crisis for business.
“There is a growing divergence emerging between companies capable of riding the post-covid economic recovery and those entangled in financial issues, struggling to benefit as the increased of cost borrowing weighs down balance sheets. Hospitality, manufacturing, construction and retail sectors are facing the brunt of squeezed household budgets.
“Finding themselves amid a climate of higher inflation, rising wages, and increased cost of production in the post-Covid economy, business owners are facing the daunting scenario of undertaking insolvency. Although the rates have slowed over the last 18 months, the current trend in insolvency rates are at a level rarely observed outside of the most severe recessions the UK has faced in the last three decades.
“The next 12 months is likely to remain an extremely volatile environment for UK businesses.”
Crowe are leading experts on debt and recovery solutions, with an experienced team of restructuring and insolvency professionals who can advise on the best course of action, depending on the business’s circumstances.
