Insolvencies of businesses in England and Wales increased by 16 percent in March, compared with the same period last year. Businesses were struggling to cope with rising costs and an economy in decline.
According to the latest Insolvency Service figures, the number of declarations reached 2,457. This is the highest monthly figure recorded since the agency began producing comparable monthly data in January 2019. The number of declarations has increased by 55 percent compared to March 2019, before the Covid-19 Pandemic.
Christina Fitzgerald, the president of R3, an insolvency and reorganization trade group, said that businesses “struggled” with rising costs, while consumers “cut back on discretionary expenditures, and staff were requesting raises to cover their bill”.
According to data published Tuesday, in the year ending March 2010, the number of creditors who voluntarily liquidated their debts increased by 9 percent to 2,011, whereas the number of compulsory liquidations nearly doubled to 288. Insolvency is a formal process that businesses initiate when they cannot finance their debts, or their assets are not enough to cover them.
The Bank of England raised its benchmark rate from 4.25 percent to 4.25 percent, causing businesses to face the highest borrowing costs in the last eight years. Separate official statistics released on Tuesday highlighted the pressures on the labour market, with wage growth remaining high and unexpectedly high in Feb.The economy has stagnated since mid-last year due to high inflation. Reuters polled economists who expect the price pressures to ease but only slowly. The official data for March will be published on Wednesday.
David Kelly, PwC’s head of insolvency, said that businesses are having difficulty obtaining financing and paying off their loans because of high interest rates. Inflation and consumer sentiment also have a wider impact on sales and cash flow. He predicted that insolvencies “would likely continue to increase in the short-term, making for a difficult spring”.
The number of insolvencies was kept low by the Covid taxpayer support of PS154bn, as well as temporary measures to help companies restructure, and avoid going into administration. The Insolvency Service reported that the number of filings has “now returned to pre-pandemic level and even exceeded it”.
Data also revealed that insolvencies for individuals rose by 2 percent to 672 during the period from March to April. The number of debt relief orders, which offer temporary protection for debtors against certain creditors, increased by 35 percent to 3,383 during the same time period.
Fitzgerald stated that the figures showed “that the cost-of-living crisis is having an impact on people’s solvency but that a larger number of them are coming to an agreement with their creditors without needing a bankruptcy procedure”.