2024 could see 35,000 businesses enter administration

The state of the UK economy Insolvency rates could exceed 1990 levels. An estimated 35,000 businesses may enter administration over the next 12 months.

While debate continues as to whether the UK has been in a technical recession, it is clear that the national economy has at least been stagnant for the last two years. With household spending power having been crippled by heightened inflation and repressed wage growth, consumers have been unable to support many businesses at a crucial time, where firms have been trying to repay pandemic-era debts.

As a result, the cost-of-living crisis continues to impact corporate Britain fiercely, with insolvency appointments soaring to their highest levels for over thirty years. According to new research from Crowe – a global accounting and consulting network –that could get even worse in the coming months, too.

Looking at official data, Crowe asserts that a crisis that “could exceed insolvency rates of the 1990s” is now on the cards, with an estimated 35,000 businesses potentially going bust over the next 12 months based on the current economic trends. That would be more collapses than seen in the recession which took place during the early phase of the Covid-19 pandemic, or the global financial crisis of 2008.

Vince Green, Crowe’s head of recovery solutions, commented, “While inflation is slowing slightly faster now, the similarities between current economic climate and those of the early 1990s suggest a once-in-a-generation crisis for business. There is a growing divergence emerging between companies capable of riding the post-covid economic recovery and those entangled in financial issues, struggling to benefit as the increased of cost borrowing weighs down balance sheets. Hospitality, manufacturing, construction and retail sectors are facing the brunt of squeezed household budgets.”

According to Crowe’s research, the figures are already above those of the early 2020s or late 2000s, with 25,000 businesses having already falling into liquidation in 2023. That represents a 13.7% boom on 2022 – as the numbers approach similar numbers to the severe recession of the early 1990s, when inflation peaked to over 10%, and over 26,000 business went insolvent.

The continued aftershocks of the pandemic, the negative impacts of Brexit, international conflict and supply chain issues, businesses have operated through a tumultuous economic climate in 2023. But looking ahead, 2024 and early 2025 look likely to still subject businesses to the same challenges.

As a result, all sectors of the economy which already saw corporate insolvency rates rise by nearly 14% compared to 2022, will expect a similarly bleak year now. Especially the heavily consumer-driven businesses of hospitality, manufacturing, construction and retail that account for an estimated £166 billion of GDP – or a third of the UK economy. Even while the UK retail sector appeared to have weathered the economic climate better last year, for example, it still suffered more than 10,000 stores permanently locking their doors with the loss of 120,000 jobs last year.

Green concluded, “Finding themselves amid a climate of higher inflation and increased cost of production in the post-Covid economy, business owners are facing the daunting scenario of undertaking insolvency. Although the rates have slowed over the last 18 months, the current trend in insolvency rates are at a level rarely observed outside of the most severe recessions the UK has faced in the last three decades. The next 12 months is likely to remain an extremely volatile environment for UK businesses.”