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UK Insolvencies: When Is The Cure Worse Than The Disease?

12,527 Company insolvencies in Q2 & Q3-2023 – the highest level since 2009.
10,162 Creditors voluntary liquidations (CVLs) in Q2 & Q3-2023 – highest since 1960.
One in 191 active companies entered liquidation over the last year (with a rate per 10,000 companies rising 11.7% year-on-year).
The number of company insolvencies in Q3-2023 was 2% lower than in Q2-2023, but 10% higher than in Q3-2022.

Nicholas Hyett, Investment Manager at Wealth Club said:

“The steady upwards movement in interest rates is all about restricting demand, reining in corporate and consumer spending by increasing the cost of debt.

However, inevitably there are some companies that will either struggle to service higher interest rates, or for whom a slight fall in consumer spending is enough to wipe out profits altogether. The result, unsurprisingly, is a spike in companies falling into insolvencies – the highest level since the financial crisis. It won’t be news to anyone who’s walked down a high-street recently that cafes, restaurants, hotels and retailers have been hit particularly hard.

There’s a degree of pain that policy makers are willing to tolerate. But there comes a point where the cure is worse than the disease, and the economy starts to slide. Of course inflation is also likely to be under control by that point, but the Bank will want to minimise the amount of economic damage where it can, leaving it with a delicate balancing act to achieve.”

*From 1 October 2022 to 30 September 2023.