Britain could see 7,000 business insolvencies per quarter in 2024

Last year was trying for SMEs and a report just out suggests that 2024 will be even more testing, particularly for the retail and hospitality sectors.

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As high interest rates continue to cause strain on businesses, Britain could see around 7,000 business insolvencies per quarter in 2024 according to new research published by the Centre for Economics and Business Research (Cebr).

There were over 6,700 business insolvencies in Britain in Q2 2023 – that’s more than double what was seen in a typical quarter during the pandemic, though businesses were largely protected from insolvency during that period. 

However, even compared with a more typical period, these figures are up by 50% compared with the same quarter in 2019. For comparison, the number of quarterly insolvencies averaged 4,100 between 2015 and 2019.

The previous peak before Q2 2023 in quarterly insolvency levels was during the financial crisis in 2009.

Trying financial times

Many businesses took on debt during the pandemic in order to survive, particularly in sectors such as retail and hospitality. These businesses saw a post-pandemic boom in demand, but many are likely to still be repaying loans and struggling to make ends meet – as seen with Wilko going into administration. 

Cebr says businesses paying back loans will be struggling even more thanks to high interest rates – higher borrowing charges add to the costs faced by businesses, and also deter investment in new projects and equipment. 

The latest Insolvency Service data shows that the food services, retail and construction sectors have made the biggest contributions to the rise in insolvencies over the past year. 

Overall, there has been a 17% annual increase in the number of insolvencies in Britain in Q2, with the food services sector reported a 57% increase over this period, with over 900 insolvencies in Q2, accounting for over a third of the overall increase in insolvencies. 

In addition to high borrowing rates and difficult economic times, could inexperience also be playing a role in the surge of insolvencies?

“The conclusions of the Cebr report come as no surprise to me,” Rob Russell, partner for finance, projects & restructuring at DLA Piper UK, told Startups. “In the decade or so since the global financial crisis, benign credit markets have shielded many corporate borrowers from the realities of a “normal” credit cycle.  

“During the financial crisis, and then again in response to the COVID pandemic, central bank and government intervention in the market held-off large scale stress and distress – both of which are a factor in a properly functioning market. 

“As a consequence, there is now a generation of decision makers (bother lenders and borrowers) who have not lived through a full credit cycle and are encountering meaningful changes in commodity prices, real estate values and supply chain disruption for the first time.  

“This paucity of experience will impact market dynamics as base-rates rise and it is important that teams have the experience and strength to make a difference.”

Looking ahead, Cebr predicts the rate of business insolvencies will remain high as interest rates continue to rise, pushing up debt repayments to hard-to-reach levels for many businesses. It is hoped the government will step in to provide much-need support for SMEs through avenues like freezing business rates.

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Kirstie Pickering - business journalist

Kirstie is a freelance journalist writing in the tech, startup and business spaces for publications including Sifted, TNW, UKTN, The Business Magazine and Maddyness UK. She also works closely with agencies such as CEW Communications to develop content for their startup and scaleup clients.

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