A wave of bankruptcies is predicted among businesses in the UK, with experts warning that supply chain problems and soaring costs will cause a deluge of distress for businesses.
According to data from the Office for National Statistics, or ONS, more than 137,000 businesses in the UK closed in the first three months of the year, an increase of almost a quarter on compared to the same period last year.
The Daily Telegraph has reported that insolvency practitioners expect the situation to get worse, with more businesses likely to have to restructure as the government’s COVID-19 business support policies come to an end .
Demand for bankruptcy specialists has been reduced during the pandemic as unprecedented government support has kept businesses afloat.
However, the government’s pandemic loan scheme is due to end later this month, and experts have warned struggling businesses could face deeper difficulties.
An insolvency specialist said 6,000 fewer businesses and around 7,000 fewer people have started insolvency proceedings in the past two years compared to 2018 and 2019.
Christina Fitzgerald, chair of trade insolvency and restructuring body R3, said there is a potential backlog of cases.
“The fall in insolvencies during the pandemic period has meant that training budgets have been cut so that there are fewer people at the junior level of the profession than there would have been if not hadn’t happened, and a number of our members find recruiting staff a challenge,” said Fitzgerald.
Andrew Bailey, Governor of the Bank of England, recently warned that inflation could soon hit a 40-year high, and warned that this could lead to a recession.
Observers say businesses are hurting due to supply chain issues, labor shortages and rapidly rising energy prices, and the most vulnerable sectors are retail, hospitality and construction, which have already seen a spike in insolvencies.
Glen Flannery, a restructuring and insolvency partner at CMS, said the number of bankruptcies was “trending upwards across the board” as pandemic-related government support was withdrawn.
The Bank of England noted that a third of small businesses in the UK were deeply in debt after taking advantage of temporarily lenient loan requirements during the pandemic.
Simon Bonney, chief executive of Quantuma, a City of London restructuring company, told the Telegraph “a storm is coming”, noting that small and medium-sized enterprises, or SMEs, were particularly vulnerable, as well as these companies” strongly dependent on energy”.