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UK companies fail at fastest rate since financial crisis

More UK companies went bust last year than at any point since the financial crisis as soaring inflation, rising interest rates and the stalling economy hit businesses.

The total number of company insolvencies registered in 2022 was 22,109 — the highest since 2009 and 57 per cent higher than 2021 — according to data issued on Tuesday by the Insolvency Service, a government agency that deals with bankruptcies and companies in liquidation.

Christina Fitzgerald, president of R3, an insolvency and restructuring trade body, added that “2022 was the year the insolvency dam burst”, as pandemic-era government support for companies was wound down.

The construction, retail and hospitality sectors have been hit particularly hard, according to Insolvency Service data, given their exposure to the faltering economy and falling consumer confidence.

Paperchase, the high street retailer, became the latest to fall into administration on Tuesday, with its brand, but not its stores, being acquired by Tesco.

Catherine Atkinson, director in PwC’s restructuring and forensics practice, warned that “creditors appear nervous”, adding that last year there was a fourfold increase in “winding up petitions”. These formal applications by creditors to shut down companies are widely seen as a key bellwether of confidence among banks and other creditors as to whether debtors are going concerns.

Business groups representing companies in hospitality and manufacturing also told a parliamentary committee on Tuesday that more British businesses would fail when the government’s energy support package was scaled back in April

“Supply-chain pressures, rising inflation and high energy prices have created a ‘trilemma’ of headwinds which many management teams will be experiencing simultaneously for the first time,” said Samantha Keen, UK turnround and restructuring strategy partner at EY-Parthenon and president of the Insolvency Practitioners Association (IPA).

“This stress is now deepening and spreading to all sectors of the economy as falling confidence affects investment decisions, contract renewals and access to credit.”

Personal insolvencies also reached the highest numbers for three years in 2022, as the cost of living crisis and falling real wages hit personal finances.

In a further sign of the faltering UK economy, lenders approved 35,600 mortgages for house purchases last month, down from 46,200 in November, according to Bank of England data.

This was well below the 45,000 approvals forecast by a Reuters poll of economists.

The BoE said that, excluding the onset of the Covid-19 lockdowns in May 2020, which brought the UK housing market to a standstill, mortgage approvals had fallen to their lowest levels since January 2009.

The December figure marks the fourth consecutive monthly decrease in mortgage approvals. The number had almost halved since it hit 74,300 in August, and was well below the 107,095 registered in November 2020.

Mortgage lending decreased to £3.2bn in December, down from £4.3bn in the previous month.

The BoE said the effective interest rate — the actual interest rate paid on new mortgages — rose 32-basis points to 3.67 per cent in December 2022, the largest monthly increase since the bank started to raise rates in December 2021.

The rise in mortgage costs follows a string of interest rate increases by the central bank as it tries to tame inflation. The BoE is expected to raise rates to 4 per cent on Thursday, after its last decision in December brought them to 3.5 per cent, the highest level in 14 years.

According to today’s data, individuals borrowed an additional £500mn in consumer credit, on net, in December, following the £1.5bn borrowed in the previous month, and below the previous six-month average of £1.2bn. 

The decline in borrowing “suggests that after a period of resilience, consumer spending may have weakened at the end of the year”, said Thomas Pugh, economist at consulting company RSM UK.

“This raises the chances that the economy contracted in the fourth quarter and fell into recession,” he added.