Around 7,000 UK businesses are likely to go bust every quarter in 2024 as high interest rates cause financial strain and the UK economy enters recession, according to a new report from The Centre for Economics and Business Research.
The think tank said debt taken on during the pandemic, higher borrowing costs and the cost of living crisis would drive an increasing number of businesses under, particularly in the retail and hospitality sectors.
There were more than 6,700 business insolvencies in Britain in the second quarter of 2023, more than double in a typical quarter during the pandemic, when many businesses were largely protected from insolvency through a range of support measures. Insolvencies over the period were 50% higher than the same quarter pre-pandemic in 2019, Cebr said, and they averaged 4,100 on a quarterly basis between 2015 and 2019.
The Bank of England has raised interest rates 14 times since the end of 2021, from 0.1% to 5.25%, heaping pressure on indebted households and businesses. Cebr is forecasting two more rate rises in the current cycle, with Bank rate peaking at 5.75%.
Slamming the government, FundMyPitch CEO, Steven Mooney, said: “Why the government is continuing the squeeze the life out of hard-pressed businesses is a complete mystery. Our entrepreneurs and innovators took a serious beating during the Covid-19 pandemic, yet all of them complied with lockdown rules despite losing huge sums of money.
“Their reward for such suffering? Spiralising interest rates and no sign of a lifeline from the government. If things don’t change soon then we’re on a path to simultaneously destroying and a new generation of businesses and crashing the economy.”
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VeUP tech consultancy director, Josh Boer, added: “These figures should serve as a wake-up call to the very real risks facing British businesses and underline the need to embrace technology to reduce overheads in challenging times. The reality is that far too many companies still operate with outdated systems in place, failing to take advantage from the full benefits of enhanced IT through cloud technologies that can transform businesses for the long term.”
Deployteq CEO, Sjuul van der Leeuw, said: “As financial pressure continues to build, businesses need to take urgent action to reduce overheads, improve operations and boost revenues. With many companies still operating on outdated manual systems for sales and marketing, embracing AI and automation should be a critical next step to improving customer relationships and driving growth, despite the challenges ahead.”
The thinktank said that with the economy in recession – defined as two consecutive quarters of contraction – the Bank could start to cut interest rates in an attempt to stimulate demand. However, the Bank has signalled that interest rates are likely to stay higher for longer as it fights high inflation, which at 6.8% is still more than three times higher than its official 2% target.
This means “the worst is yet to come in terms of borrowing costs, quite apart from the impact of fixed term loans made when interest rates were lower being rolled over at the new higher rates”, the thinktank said.
It added: “Looking ahead to the future, Cebr expects the rate of business insolvencies to remain high as interest rates continue to rise, pushing up debt repayments to unsustainable levels for some businesses.
“Our models suggest that there could be 7,000 insolvencies per quarter on average across 2024. Furthermore, Cebr is forecasting a recession in the UK, with two consecutive quarters of contraction in GDP in the fourth quarter of 2023 and first quarter of 2024.”