Challenges for a new government: UK insolvencies a key barometer of the economy
Solomonic data surfaces ongoing heightened activity levels in the Insolvency and Companies List, with the construction sector and consumer products worst hit by winding up petitions.
The economy has endured a number of challenges including the Covid-19 pandemic and departure from the EU and the strain in terms of high inflation and the cost-of-living crisis has been at the forefront of election discussions.
As the UK goes to the polls today, with the economy very much on the agenda, insolvencies are a concerning barometer.
Insolvency volumes
As we reported last Autumn, insolvency activity has been on the rise since 2021. The number of new actions in the first half of 2024 is projected to be about 200% higher than in the first half of 2021 (rising from 2,135 to approximately 6,300). There appears to be some stability in the number of applications, with volumes for the first and second halves of 2023, and the first half of 2024, all hovering around 6,000. Interestingly, the chart shows that both April 2023 and 2024 saw a dip in claims, quietening over the Easter holiday period. However, May 2024 marked the busiest recorded month in recent years. June 2024 did take a dip, down 16% on the same month last year. The overall picture is not an encouraging one for any government.
Winding up petitions
The second chart provides a different perspective, showing the distribution of actions by their application type. We have focused on the most frequent types: Winding up; Notice of intention to appoint an administrator; Notice of appointment of administrator; Company restoration; Director disqualification and CVA, with all others grouped together.
Most notably, and as previously reported, the primary driver of the surge in insolvency numbers is the proportion of winding up petitions which jumped from approximately 15.4% in January 2021 to just under 60% in May 2024. From January to October 2021, the average rates of company restorations and winding up petitions were similar, both fluctuating between 15 and 17%. However, November 2021 is when winding up petitions began to increase significantly, rising from 14.6% in October to 32.8%. By April/May 2022, winding up petitions reaching nearly 50% became the norm, whereas during the same period, company restorations have declined, another indicator of tough economic conditions.
Sectors being wound up
The final chart focuses specifically on the sectors impacted by the most winding up petitions.
The construction & infrastructure sector has been the hardest hit, accounting for about 33.8% of all winding up petitions in 2021. This dropped to 28% in 2023 and sits very slightly lower at 27.2% so far this year.
The consumer products sector has also consistently been battling winding up petitions, but 2024 H1 has been the worst, up from 12.7% 2021-2023 to 16.1% in H1 2024. Between the pandemic, rising energy bills and the cost-of-living crisis, some major brands have vanished from UK high streets; this year alone so far witnessed the fall of Ted Baker, The Body Shop and Wilko.
The real estate sector is the third worst hit, with some respite in 2022 and 2023, but accounts for 9% so far this year. Banking & finance has seen a slight creep up this year from 2.3% in 2023 to 3.7%. TMT has also steadily been on the increase year on year, from 4.9% in 2021, to 8.2% in the first half of 2024.
Undoubtedly, there are pressing issues that need to be addressed for a newly elected government and the data suggests recent improvements in growth and lowering of inflation have not yet flowed into improved data in the Insolvency Court.
The Solomonic platform is used by top insolvency specialists including Grant Thornton, Stewarts and South Square. Track insolvency activity with a 1-month free trial of our flagship alerts service to receive a comprehensive summary of newly filed claims.
All data correct as of 5:30 30th Jun 2024.