More companies are falling into administration in England and Wales, with a 4.3 per cent increase in insolvencies during 2017, according to research by KPMG. The consultancy firm analysed notices in the London Gazette, which showed that the number of companies entering administration increased from 1,156 in 2016 to 1,206 in 2017. But it also found that insolvencies fell during the last quarter of 2017. Some of the UK's notable corporate insolvencies last year include Monarch Airlines, Jaeger and Jacques Vert.
This signals a “subtle shift towards more difficult times for businesses”, according to KPMG's analysis. The underlying drivers of the rising insolvency rate include:
- sterling's weak exchange rate;
- rising inflation; and
- the negative effects of uncertainty on consumer and corporate confidence.
Fewer financing options on the table
These factors could continue to drive up the insolvency rate during 2018. Some of the trends seen in the UK include the food/casual dining industry bearing the brunt for inflated food prices, while tightened consumer spending is also affecting retailers, with many announcing store closures or releasing profit warnings in 2018.
KPMG's Blair Nimmo commented: “While interest rates remain low, and sources of finance plentiful, the credit appetite of some lenders is beginning to tighten as they recognise the pressure points in the economy. This means that those businesses which have been struggling and relying on refinancing to see them through the last few months now have potentially fewer options on the table. It’s also clear that issues such as Brexit and volatility in the capital markets will continue to muddy the waters, potentially stifling investment in some quarters and intensifying the competition for talent in a number of sectors.”
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