Vastly higher interest rates coupled with pessimistic consumer sentiment could ring the death knell for up to 50,000 companies in the United Kingdom.
According to the latest report from insolvency management firm Begbies Traynor, around 47,477 firms were in deep financial trouble as of December 31, 2023. The number is higher than September’s figure by around 10,000. The report also showed how recent increases in the country’s National Living Wage and corporate taxes have forced many businesses to consider closing their doors.
The firm tracked 22 corporate and industrial sectors in their latest Red Flag Alert, noting how real estate and construction are bearing the brunt of the impact. In terms of geographical location, businesses in London and the southeastern region of the country were among those in crisis, numbering over 22,000 at the end of 2023.
Julie Palmer, a partner at Begbies Traynor, remarked that any business that interacts with consumers is now feeling the impact of the higher cost of living. Higher interest rates also mean that these companies are increasingly unable to pay their outstanding debts and that their closure is bound to increase the number of jobless individuals.
For her part, restructuring lawyer Inga West of Ashurst is not surprised that so many companies are now feeling the pinch. While larger businesses have several options through which they could continue operating, current circumstances spell the end for smaller enterprises. She also notes that, given how interest rates will remain at historic highs for a while longer, most businesses will shy from borrowing to stay afloat. Indeed, some firms may undergo significant restructuring to keep going.
Much like in the United States, the UK’s central bank has been aggressively raising interest rates since 2021 to keep inflation within manageable levels. However, this also means that the country’s interest rate is at its highest in sixteen years.