PwC comments on June's insolvency data

James Lewin, Director in PwC’s South East Restructuring practice, said:

“Today’s data showing 2,163 insolvencies in June is concerning. The total number of insolvencies for the first half of 2023 is approximately 13,000, which is almost 17% higher than H1 2022.  Winding up petitions have also doubled in the first half of this year compared to last year, with June 2023 seeing the highest number since November 2019.

“Although so far it’s primarily been smaller businesses falling into insolvency, with 97% being companies with less than £1m turnover, larger businesses are not exempt to the pressures. Similarly, no sectors are immune from the headwinds, with business services, construction and hospitality and leisure the most affected on an aggregate basis. The hospitality sector was particularly hard hit during H1 with nearly a 60% increase in insolvencies compared with the same period in 2022. This reflects the continued pressure on household budgets, with consumers being more selective about their spending.

“In addition, the retail sector is very exposed to the current climate of high interest rates and stubborn inflation, due to its tendency to have low operational leverage and demanding working capital requirements. As a result, unfortunately, we expect to see an increasing number of insolvencies in this sector as the year unfolds.”
 

David Kelly, Head of Insolvency at PwC said:

“As interest rates track higher, more businesses could become overwhelmed and, as such, we expect the number of insolvencies to continue to climb. Although the relationship between interest rates and insolvencies tends to have a lag effect, we’re starting to see a large number of companies having to restructure their debt, which is leading to increased liquidity pressure and, consequently, more voluntary liquidations. 

“Whilst there will soon be some respite in the form of lower energy bills, this could reverse as we approach winter months. Interestingly, in June there was a 68% increase in the wholesale price of gas, showing just how tight and volatile the energy market remains, despite being past the peak of last year’s energy crisis.”