Company insolvencies jump 27% as high interest rates hit economy; UK grocery price inflation dips – business live

Today’s data showing there were 2,163 insolvencies in June is concerning, says James Lewin, director in PwC’s South East Restructuring practice.

Lewin explains:

The total number of insolvencies for the first half of 2023 is approximately 13,000, which is almost 17% higher than H1 2022. Winding up petitions have also doubled in the first half of this year compared to last year, with June 2023 seeing the highest number since November 2019.

“Although so far it’s primarily been smaller businesses falling into insolvency, with 97% being companies with less than £1m turnover, larger businesses are not exempt to the pressures. Similarly, no sectors are immune from the headwinds, with business services, construction and hospitality and leisure the most affected on an aggregate basis. The hospitality sector was particularly hard hit during H1 with nearly a 60% increase in insolvencies compared with the same period in 2022. This reflects the continued pressure on household budgets, with consumers being more selective about their spending.

“In addition, the retail sector is very exposed to the current climate of high interest rates and stubborn inflation, due to its tendency to have low operational leverage and demanding working capital requirements. As a result, unfortunately, we expect to see an increasing number of insolvencies in this sector as the year unfolds.”

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Of the 2,163 registered company insolvencies in June:

• There were 1,759 CVLs, which is 21% higher than in June 2022;

• 260 were compulsory liquidations, which is 77% higher than June 2022;

• 14 were CVAs, which is 75% higher than June 2022;

• There were 130 administrations, which is 44% higher than June 2022.

Inga West, counsel at the law firm Ashurst, says total company insolvencies remain high compared to both last year and pre-pandemic.

West explains:

It’s not just creditor voluntary liquidations and compulsory winding-up numbers that are up – both administrations and company voluntary arrangements are also above June last year. This suggests that insolvencies of mid-market and larger businesses are also creeping up because they tend to use these more expensive processes.

We have now caught up with the Covid backlog – that is the so-called ‘zombie companies’ that were able to avoid insolvency during the pandemic partly or wholly due to the Covid government support measures, and which subsequently needed to liquidate when the support ran out. This boosted numbers for a while, but it looks as if they have now been processed. So today’s high rates reflect the current financial pressures, including high interest rates and high inflation. Businesses that levered up on low interest rates will need to adjust their business models to cope with a sustained period of higher interest rates, which is forecast to last at least into 2024. If they can’t do that, they face some difficult choices and it seems likely that restructuring and insolvency activity will remain high for the foreseeable.

Anecdotally, Ashurst are seeing pressure across all sectors including infrastructure, casual dining and retail.

The recent restructuring plans for Fitness First, Prezzo and Chaptre Finance are “clear examples of this,” West says.

Here’s a chart showing how UK company insolvencies have climbed since early 2021.

UK company insolvencies have jumped, as firms are hit by a slow-growing economy and high interest rates.

There were 2,163 registered company insolvencies in June, the Insolvency Service reports.

That is 27% higher than in the same month in the previous year – 1,698 firms filed for insolvency in June 2022.

It is higher than levels seen while the Government support measures were in place in response to the Covid-19 pandemic and also higher than pre-pandemic numbers.

But it is a drop on May, when 2,552 insolvencies were reported.

Pret back in profit as sales jump 20%

Sarah Butler

Pret a Manger sales rose by a fifth in the first half of this year after returning to profit for the first time since 2018 last year as the launch of a subscription service helped the coffee shop chain bounce back from Covid restrictions.

The group, which suffered during the pandemic lockdowns when office workers stayed at home, has reported that sales reached £429.9m in the six months to the end of June.

The increase came after it relaunched its subscription service, which first kicked off in September 2020, as Club Pret, upping the cost by a fifth to £30 a month for – but adding a 10% discount on food and snacks alongside up to five hot drinks a day.

Sales have also been boosted by international expansion with Pret now operating in 15 countries on three continents. It aims to have over 700 shops overseas by the end of 2023, up from 600 at present. International sales now account for 18.9% of revenue.

Sales soared 71% to £790m in the year to the end of December 2022 and the company booked an annual operating profit of £50.6m – bouncing back from a loss of £168m a year before.

UK mortgage rates have remained unchanged for the second day running, as the surge in borrowing costs stabilises.

Financial data firm Moneyfacts reports that the average cost of both two-year and five-year fixed mortgages were unchanged today, as they also were on Monday.

Here’s the details:

• The average 2-year fixed residential mortgage rate today is 6.78%. This is the same average rate as the previous working day.

• The average 5-year fixed residential mortgage rate today is 6.30%. This is the same average rate as the previous working day.

Mortgage providers also brought more products onto the market today, after a drop yesterday

There are currently 4,334 residential mortgage products available, up from 4,246 on Monday, Monayfacts reports.

Sales for newly-built homes in London have slumped to their lowest in over a decade, Bloomberg reports, as surging borrowing costs weigh on the city’s housing market,

Developers in the capital sold just over 3,000 new homes between April and June, according to data compiled by Molior London and seen by Bloomberg News.

That’s lower than any quarter since 2012, and is ever worse than in the second quarter of 2020, when 3,855 homes were sold despite the Covid-19 national lockdown.

The report’s authors said:

“Marketing suites are reliant on incentives and a refocusing towards a small pool of discretionary purchasers.

“Overseas sales, particularly from Hong Kong buyers, have also recently slid.”

The data is based on transactions for projects with at least 20 units. It also shows that around 70 housing development projects are currently stalled in the capital.

Full story: UK grocery price inflation eases as shoppers turn to loyalty cards

Sarah Butler

Grocery price inflation has eased to 14.9%, the lowest rate since Christmas, as supermarket shoppers sought out loyalty card promotions, my colleague Sarah Butler writes.

The fall in inflation over the four weeks to 9 July was partly the result of shoppers spending more via schemes such as Tesco’s Clubcard and Sainsbury’s Nectar, but it was also driven by a comparison with a step up in inflation a year ago.

Despite the dip in supermarket inflation from 16.5%, prices are still rising at a much faster pace than they have done historically. More here.