7,000 British companies are at risk of failure every 3 months in 2024

Thousands of companies in Britain are heading towards bankruptcy with increasing expectations of severe economic troubles due to high interest rates and increased borrowing costs, which comes after the difficult period that the financial and business sector went through during the “Corona” epidemic and the closures it caused.

7,000 companies

A specialized research center in London concluded: “It is likely that about 7,000 companies will fail every three months in 2024, due to high interest rates, the financial pressures they have caused, and the UK economy entering a recession.”

According to the Center for Economic and Business Research (CEBR) in London, the debt incurred during the pandemic, high borrowing costs and the cost-of-living crisis will lead to the decline of an increasing number of companies, especially 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 the number recorded during the Corona epidemic, when many companies were largely protected from insolvency by a range of government support measures.

Interest rates

The center said that insolvencies during this period were 50% higher compared to the same quarter before the pandemic in 2019, and 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%, increasing pressure on heavily indebted households and companies.

The CEBR expects two additional increases in interest rates, bringing the Bank of England interest rate to 5.75%. This means “the worst is yet to come for borrowing costs, quite apart from the impact of fixed-term loans made when interest rates were lower, which are being carried forward at the new higher interest rates”.

He added: “Looking to the future, the corporate bankruptcy rate is expected to remain high as interest rates continue to rise, pushing debt repayment to unsustainable levels for some companies.”

He continued: “Our models indicate that there may be 7,000 insolvencies per quarter on average during 2024. Furthermore, we expect a recession in Britain, with two consecutive quarters of contraction in GDP in the fourth quarter of 2023 and the first quarter of 2020 and 2024.

As the economy enters a recession — defined as two consecutive quarters of contraction — the bank could start cutting interest rates in an attempt to stimulate demand, the think tank said. However, the bank indicated that interest rates are likely to remain high for longer as it battles high inflation, which currently stands at 6.8% and remains three times higher than its official target of 2%.

Last week, Hugh Bell, chief economist at the Bank of England, said interest rates in Britain were likely to take the path of Table Mountain - a reference to the flat plateau above Cape Town - meaning borrowing costs were unlikely to fall quickly.

“There may be multiple paths that get you to where you want to be,” Bell said in a speech in South Africa, some of which rise quickly and fall quickly in what is sometimes known as the Matterhorn file. The alternative is to keep the restrictions in place for longer and in a more consistent and decisive manner, with interest rates being more like a Table Mountain. I tend to prefer the latter option.