UK insolvency rates to hit 12-year high amid economic challenges

UK insolvencies are set to reach new heights in 2024, with over 29,000 companies expected to fail—a year-on-year increase of 5% and the highest figure in 12 years according to our Global Insolvency Report. The construction, trade, and hospitality sectors are among the hardest hit, accounting for 18%, 15%, and 14% of total insolvencies, respectively.

Businesses have faced a series of shocks, from Brexit and the Covid-19 crisis, to rising interest rates sticky inflation. However, there are signs that insolvencies are at their peak. As inflation eases and interest rate cuts take effect, it should provide relief for UK businesses, with insolvencies expected to decrease by 6% in 2025 and a further 2% in 2026.

Despite this, insolvency levels remain high. By the end of 2024, UK insolvencies will likely be 43% above the 2016-2019 average, and they are expected to stay 30% above pre-pandemic levels until 2026. The percentage of fragile UK firms remains elevated at 12%, and ongoing geopolitical instability, coupled with delayed debt refinancing, limits the relief lower interest rates can provide. Non-payment risks are expected to remain high throughout 2025.

The UK is not alone in facing a surge in business insolvencies in 2024. Globally, business insolvencies have risen by 9% year-to-date, with three-quarters of countries reporting an increase in the first half of the year. We expect global insolvencies to rise by 11% in 2024, with two-thirds of countries, including the UK, exceeding pre-pandemic levels. In Western Europe, insolvencies are projected to end the year 14% higher, or 22% above pre-pandemic levels.

The rise is widespread, with few sectors escaping this upward trend. Construction, retail, and services have seen the largest increases in both the number and size of bankruptcies. In the UK, around 5,000 construction and real estate firms, and 4,000 retail and automotive businesses, are expected to go under this year. Approximately 172,000 jobs in the UK are at risk in 2025, while over 1.1 million jobs are at risk across Europe.

Large companies are also increasingly vulnerable, heightening the risk of a domino effect, where business failures cascade down supply chains. Major global insolvencies (companies with over EUR50mn in turnover) reached a new peak in Q2 2024, with 110 cases, up 23% in the first half of the year. Western Europe leads with 127 major insolvencies in the first half of 2024, 51 more than last year, with a combined turnover of EUR96bn.

As the UK Budget approaches on 30th October, the UK economy is showing signs of recovery. GDP growth is forecast to rise to 1.7% in 2025, up from 1% this year, before easing to 1.3% in 2026.  Inflation is now back below the Bank of England's 2% target, having fallen to 1.7% in the year to September, the lowest rate in three-and-a-half years This opens the door for accelerated rate cuts, with the BoE expected to reduce rates by 25bps at each meeting from November 2024, stabilising at 3% by August 2025 (previously forecasted at 3.25%).

However, lower interest rates are not a silver bullet. A significant portion of corporate debt will mature by 2026, and the full benefits of lower rates may not materialise until late 2025. Highly leveraged sectors will remain under pressure, sustaining high insolvency rates.

In terms of business financing, we foresee limited relief. Global restocking will require companies to mobilise financial resources, with buyers likely to extend payment terms, heightening working capital requirements (WCR). As of mid-2024, global WCR had only slightly improved, reducing by just one day year-on-year to 82 days, despite the global destocking.

In response to a rising threat from insolvencies, many businesses rely on trade credit insurance as a vital safeguard against potential losses arising from non-payment or default by customers. Trade credit insurance provides your businesses with financial protection and peace of mind by indemnifying you against losses incurred due to insolvency or protracted default. By using the services of an insurer such as Allianz Trade, your company will have access to deep insight into the creditworthiness of your suppliers worldwide, expertise in areas such as risk and cash flow management, and an assurance that you will be paid in full if buyers go under. That safeguards the business’s cash flow, maintains its liquidity, and sustains uninterrupted operations, even in the face of widespread insolvencies.

To find out more about market-leading trade credit insurance from Allianz Trade, contact our specialist team for a free consultation on 0800 056 5452, or get a free online quote today.