The number of companies in England and Wales declared insolvent jumped by 43% in August, according to government data, which adds to concerns for the health of the UK economy.
There were 1,933 insolvencies in August, compared with 1,348 in the same month last year, the Insolvency Service said. It was 42% above the level in August 2019, before the Covid-19 pandemic hit.
Economists are concerned that businesses will increasingly struggle as consumers cut back spending amid high inflation. The government has stepped in with an energy price freeze that will cushion the blow of increased cost of gas and electricity, but the unit price paid by households this winter will still be well over double the levels of recent years.
At the same time, businesses are faced with similar energy price pressures and other cost rises. The government has pledged “equivalent support” for six months, but the prime minister’s office has admitted that details of the package may not be available for several weeks.
Business groups have complained that delays to support are likely to force many companies into insolvency, as they cope with unavoidable soaring bills.
The prime minister, Liz Truss, and the chancellor, Kwasi Kwarteng, are expected to reveal further details of their package to prevent the UK economy from shrinking in a mini-budget on Friday 23 September. However, some economists have warned that a recession may be unavoidable. The Bank of England has predicted a long recession, albeit without taking into account the new government’s policies.
Kallum Pickering, a senior economist at Berenberg, an investment bank, said: “While the fixing of consumer energy prices, as well as possible near-term cuts to taxes, may soften the shock to real incomes, such measures may only dampen the downturn and not fully prevent it.”
Retail sales fell by more than expected in August, adding to concerns about the UK economy. After the data the pound hit a 37-year low against the US dollar, reflecting traders’ concerns about the economy.
Some British companies had been protected from much of the economic turmoil of the past two-and-a-half years by the unprecedented government pandemic support. That included the furlough scheme, which paid for wages of people who could not work during lockdowns, and a series of loan schemes.
However, corporate insolvencies in England and Wales have risen markedly since hitting their pandemic low of less than 750 a month in February 2021.
Separately collected data for Scotland and Northern Ireland showed elevated levels of corporate failures compared with recent months.