Companies going bust rises by a fifth compared to same period last year

The latest figures from the Insolvency Service reveal a concerning trend in business insolvencies, with a notable increase of nearly a fifth compared to the same period last year.

In February, a total of 2,102 businesses faced insolvency, marking a significant rise from the 1,801 recorded in February of the previous year.

While the data did not provide specific sectoral breakdowns for February, recent trends have shown that insolvencies are predominantly concentrated in sectors such as construction, retail, and manufacturing.

This surge in insolvencies coincides with the Bank of England’s efforts to combat inflation by gradually raising interest rates. Since November 2021, the base rate has been increased from a historic low of 0.1 percent to 5.25 percent by August 2023, the highest level in 16 years.

Despite expectations of stability in interest rates at the upcoming meeting of the Bank’s monetary policy committee, financial markets anticipate a potential rate cut in June.

It’s worth noting that government support schemes introduced during the Covid-19 pandemic, along with legal protections for financially affected companies, helped keep insolvency figures relatively low. However, these temporary measures were lifted in April 2022, exposing businesses to increased financial pressures.

Sarah O’Toole, restructuring partner at PwC UK, highlighted the ongoing challenges faced by businesses, including supply chain disruptions, cautious lending practices, and the impact of higher interest rates. She noted that the rise in insolvencies in February was expected, particularly following poor trading performances during the holiday season.

The uptick in insolvencies raises concerns about potential job losses, with unemployment expected to increase as affected businesses lay off staff. Despite this worrying trend, there are indications of economic recovery, including modest GDP growth and a significant rebound in retail sales in January, signaling a potential end to the recent recession.