UK insolvencies jump as higher rates take their toll

THE number of UK companies collapsing in June was 27 per cent higher than a year earlier, amid steep borrowing costs and sluggish economic growth.

The Insolvency Service said on Tuesday (Jul 18) that 2,163 businesses went bust last month, exceeding pre-Covid levels as well as recent years when the government provided support to help companies cope with the pandemic.

“The combination of higher interest rates and a slowing economy is taking its toll,” said Nicholas Hyett, investment manager at Wealth Club, a broker. “The only other time things have looked this bleak was during the early 90s recession.”

There were 260 compulsory liquidations, up 77 per cent from a year ago. The Insolvency Service said there had been more winding-up petitions from HM Revenue & Customs.

The numbers raise the prospect that more than 6,000 companies went under in a quarter for the first time since 2009 in the aftermath of the financial crisis. Official quarterly figures, adjusted for seasonal fluctuations, are due at the end of the month.

Higher interest rates are starting to feed through as “a large number of companies” restructure their debt, leading to more voluntary liquidations, said PwC’s head of insolvency David Kelly.

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Business services, construction, hospitality and leisure are the most affected sectors. Small companies make up most of the companies closing down, yet larger businesses are starting to feel the pressure of higher rates and the inflation crisis.

“As the impact of collapses spreads through supply chains, and as the cost of capital increases, more and more larger firms, who may be more highly leveraged, will be facing financial pressure,” said David Hudson, restructuring advisory partner at FRP. “On the ground, we’re already seeing early indications of this contagion through the business community.”

UK inflation figures on Wednesday are set to keep the pressure on the Bank of England to raise interest rates again. BLOOMBERG