Corporate insolvencies in England and Wales jumped by 40 per cent year-on-year in May to the highest level since monthly reporting began in 2019, as businesses struggled with rising borrowing costs and high prices.
Official data published on Friday showed that registered company insolvencies reached 2,552 last month, up from 1,825 in the same month last year and nearly double the figure in May 2019, before the onset of the Covid-19 pandemic.
“Even though the UK appears to be swerving a recession for now, the triple whammy of the rapid hike in borrowing costs, a super-tight labour market and onerous energy bills have been too much to bear for many firms,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
She added that insolvencies were low during the pandemic because there was greater help available for companies, such as loans and relief measures, “but now, as firms are still battling through an inflationary crisis, insolvencies have surged higher than pre-pandemic times”.
Data from the Insolvency Service showed that there were 2,181 creditors’ voluntary liquidations in May, up 38 per cent year-on-year, while compulsory liquidation rose by 34 per cent to 189.
Borrowing costs have surged as the Bank of England has progressively raised interest rates from a record low of 0.1 per cent in November 2021 to 4.5 per cent. Combined with stubbornly high inflation and strong wage pressures, the financial markets have priced in that the central bank will raise rates to 5.75 per cent by the end of the year.
Nicky Fisher, president of R3, the UK’s insolvency and restructuring trade body, said that “interest rates and inflation will continue to create challenges for businesses seeking funding over the summer, and could be the tipping point for those businesses who are hanging in there at present”.
Corporate insolvency is the formal measure taken when a business can no longer pay its debts. Separate quarterly figures showed that at the end of 2022 corporate insolvencies reached the highest level since 2009 and have remained near that level in the first three months of this year.
The rise was widespread across industries. Between January and April, the latest period with detailed data, the number of insolvencies rose by an annual rate of nearly 60 per cent for food and beverages producers, by 44 per cent for furniture manufacturers and by nearly 40 per cent for bars and pubs.
Source: Economy - ft.com
