UK insolvencies rise 16% in March as higher costs hit businesses hard

Corporate insolvencies in England and Wales rose 16 percent in March compared to the same month last year, as businesses struggled with higher costs and a weak economy.

The number of filings reached 2,457, according to the latest figures from the Bankruptcy Service, the highest monthly figure since the agency began producing comparable monthly data in early 2019. Compared to March 2019 before the Covid pandemic broke out -19, the number of declarations increased by 55 percent.

Christina Fitzgerald, chairwoman of R3, the insolvency and restructuring trade body, said businesses were “struggling” with rising costs while consumers were “cutting discretionary spending and as staff [were] asking for pay raises to cover their bills.”

In the year to March, creditor voluntary liquidations rose 9 percent to 2,011, while mandatory liquidations more than doubled to 288, according to data released Tuesday. Companies file for formal insolvency when their assets no longer cover their debts or they can no longer finance their debt.

The surge in filings comes as businesses face their highest borrowing costs since 2008 with the Bank of England raising its benchmark rate to 4.25 percent. Separate official data released Tuesday underlined labor market pressures with unexpectedly high wage growth in February.

Line chart of England and Wales, '000 showing the rise in corporate insolvencies in March

At the same time high inflation has led to the economy stagnant since the middle of last year. Price pressures are easing, but only slowly, as economists polled by Reuters expect March inflation to fall to 9.8 percent when official data is released on Wednesday, 1.3 percentage points below the all-time high. 41 years of 11.1 percent in October.

“Businesses are struggling to secure financing and repay their loans due to high interest rates and the broader impact that inflation and consumer confidence have on sales and cash flows,” said David Kelly, director of PwC insolvency. He expected insolvencies “likely to continue to rise in the near term, making for a challenging spring.”

Some £154bn of Covid taxpayer support, along with temporary measures that helped companies restructure and avoid going into administration, kept the number of insolvencies low during the pandemic. But the winding down of those measures meant that the number of filings “had now returned to and exceeded pre-pandemic levels”, the Bankruptcy Service said.

The data also showed that individual insolvencies rose 2 percent to 672 in the year to March. Debt relief orders, a measure that offers temporary protection to debtors from certain creditors, increased 35 percent to 3,383 during the same period.

Fitzgerald said the numbers suggest “that the cost-of-living crisis is affecting people’s creditworthiness, but more are settling with their creditors without requiring bankruptcy.”

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