UK corporate insolvencies spike to the highest levels since 2008
"Zombie companies are likely to be early casualties of rising interest rates. However, if their demise frees up staff and properties for use by more profitable companies, the long run effect could be a boost to UK productivity..."
England and Wales saw over 70 corporate insolvencies per day in June, up a sharp 27% year-on-year as the macroeconomic climate deteriorated.
The past quarter’s insolvencies hit 6,403 – the highest since the 2008 financial crisis – with compulsory liquidations in June 2023 up 77%.
The figures were released by the UK’s “Insolvency Service” (a government agency that sits under the Department for Business and Trade) today.
They emphasise the extent to which sharply rising interest rates and other headwinds are causing economic pain and Nicholas Hyett, Investment Manager at Wealth Club noted to The Stack that “the only other time things have looked this bleak was during the early 90s recession.”
The numbers come as profit warnings by UK-listed companies have also hit a three-year high on falling sales and tightening credit conditions.
(Documents management company Restore was among those, issuing a second profit warning in two months earlier in July. Management blamed continued weakness in the technology business, a reduction in demand for digital scanning and higher interest costs – estimated at £9.6 million for 2023 compared with £5.9 million in 2022 and £2.9 million in 2021.)
Hyett added: “The increased pressure doesn’t seem to have found its way into employment numbers yet, and the labour market remains strong, but we’d expect that to change in the months ahead. Unpleasant though it sounds that would be a relief for the Bank of England – which is looking to take some heat out of the economy. If economic data continues to weaken, then there’s a chance the Bank will declare an early victory in its battle with inflation, meaning rates peak at lower levels than anticipated.”
“Insolvencies and the accompanying job losses are never pleasant, but it’s just possible those companies falling to the economic pressure are companies the economy can afford to lose. There’s been much debate about zombie companies in recent years – businesses that are barely profitable, or heavily indebted that have managed to muddle through in a world where cheap bank loans were easily available. Those companies are likely to be early casualties of rising interest rates. However, if their demise frees up staff and properties for use by more profitable companies, the long run effect could be a boost to UK productivity. Unfortunately, only time will tell whether the current spike in insolvencies is a zombie apocalypse or an apocalypse of the regular, more painful kind.”
