Insolvencies will continue to rise for ‘foreseeable future’ under burden of high interest rates

Insolvencies climbed 17 per cent on last year in September as companies struggled under the burden of the Bank of England’s interest rate hikes.

There were 1,967 company insolvencies in September, higher than levels seen both before and during the pandemic, when support measures were in place.

Voluntary liquidations made up the bulk of the total, with 1,576 recorded in September – 14 per cent higher than last year. In addition there were 255 compulsory liquidations and 125 administrations.

The number of compulsory liquidations and administrations have increased from historically low levels and are now close to pre-pandemic levels.

Although the number of insolvencies was down slightly on August’s figure, David Kelly, head of insolvency at PwC said: “While this dip is welcome, we expect the respite to be short-lived, with the UK remaining on track for the highest number of insolvencies since 2009.”

The rise in insolvencies reflects the unwinding of decades of low interest rates. In an attempt to contain stubbornly high inflation, the Bank of England has brought interest rates to a post-financial crisis high of 5.25 per cent.

This has piled pressure onto firms as it forces the cost of borrowing higher.

Linton Bloomberg, Partner, Reed Smith said that “the significant challenge presented by the combination of high interest rates and reduced disposable income is likely behind the increase in the number of insolvencies compared to this time last year.”

Research suggests that much of the impact of rising interest rates has yet to be felt by borrowers, meaning there is further pain in store for businesses.

Last month, research from the Centre for Economics and Business Research suggested there will be 26,700 insolvencies across 2023 as the impact of the Bank’s rate hikes filtered through the economy.

Bloomberg said that “with the full effect of the economic challenges facing the UK yet to be felt, we should expect this pattern of rising numbers of insolvencies to continue for the foreseeable future.”