As we kick off a new year, the vision of economic uncertainty looms large over the United Kingdom. PricewaterhouseCoopers (PwC) has sounded a sober note, predicting that nearly 30,000 businesses will enter a formal insolvency procedure in 2024, marking the highest level since 2004. This alarming revelation, coupled with insights into the sectors most vulnerable, paints a challenging landscape for UK businesses.
Key Issues Unveiled by PwC’s Findings
PwC’s report points to several critical issues that are likely to contribute to the surge in corporate bankruptcies:
- Sector Vulnerability
PwC identifies the hospitality, manufacturing, and transport/storage sectors as the most susceptible to collapse. These industries are expected to bear the brunt of high energy prices, sluggish economic growth, and rising interest rates.
- Impact of Economic Factors
The trifecta of high energy costs, slow economic expansion, and elevated interest rates is poised to strike again in 2024. These factors, individually and collectively, threaten the stability of businesses, especially smaller enterprises.
- Rise of Zombie Businesses
PwC raises concerns about the existence of “zombie businesses” surviving on historically low interest rates. As rates potentially rise, these businesses may face insurmountable difficulties, adding to the overall distress.
- Inflationary Pressures
Despite a decline in headline inflation, PwC predicts that consumer prices will remain substantially higher than 2021 levels. This will force consumers to recalibrate their spending habits, affecting businesses across various sectors.
- Pressure on Households and Businesses
The Insolvency Service’s data for November reveals a 21% increase in company insolvencies compared to the previous year. The ongoing challenges of high interest rates, a cost-of-living crisis, falling energy prices, and inflation are putting significant pressure on UK households and businesses.
Insights from Barrett Kupelian, Chief Economist at PwC
Barrett Kupelian, PwC’s Chief Economist, warns of potential hurdles in 2024. He highlights the existence of “known unknowns,” such as global energy price volatility due to the Middle Eastern conflict and the upcoming general election. Despite these uncertainties, Kupelian remains cautiously optimistic, suggesting a bullish overall outlook for the UK in 2024.
The Insolvency Practitioner’s Dilemma
As insolvency practitioners, we find ourselves at the forefront of this economic storm. The increasing corporate distress, coupled with PwC’s dire predictions, necessitates a proactive and strategic approach. The expected rise in bankruptcies underscores the importance of early intervention, financial restructuring, and expert guidance.
Looking Ahead: Challenges and Opportunities
While the economic landscape appears daunting, there is room for resilience and innovation. As PwC predicts that headline inflation will remain close to the 2 percent target next year, it offers a glimmer of hope. The potential for a base rate cut in early 2024 adds another dimension to the evolving narrative.
To read the full PwC report, click here.
As we stand on the precipice of a challenging year, insolvency practitioners must equip themselves to navigate these turbulent waters. The ability to adapt, strategise, and provide insightful solutions will be crucial in mitigating the impact of the impending wave of business insolvencies.
In conclusion, 2024 poses significant challenges for businesses across the UK. Insolvency practitioners must be vigilant, agile, and ready to guide businesses through the storm, providing the expertise needed to weather the economic uncertainties on the horizon.
How do I contact BABR?
Businesses operating whilst insolvent is not unusual, but great care should be taken.
Our experienced team at BABR can help to provide guidance to directors along the way to make sure they avoid potential pitfalls and mitigate any risk of them later being held personally liable for liabilities or losses incurred by the company.
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Remember…
Preventing insolvency should be a priority for every company director. By implementing these five essential strategies—effective financial management, diversification of revenue streams, efficient cost management, strengthening customer relationships, and seeking professional advice— as detailed in our blog here, you can significantly reduce the risk of insolvency and ensure the long-term sustainability of your business.
BABR can even help support your business with tailored financial support!
