Higher interest rates likely to push insolvencies up
Pressure caused by higher interest rates as well as the relatively subdued economic outlook is likely to lead to a further rise in insolvencies, the Bank of England has warned.
Senior Journalist, covering the Credit Strategy and Turnaround, Restructuring & Insolvency News brands.
Senior Journalist, covering the Credit Strategy and Turnaround, Restructuring & Insolvency News brands.
Based on the UK central bank’s latest financial stability report, it comes as corporate insolvencies to have continued to increase – going to around 2,500 in May, up from a Covid-era low of below 700 in early 2021.
Most of these recent increases has been among smaller “micro companies”, with many of these holding little debt and the debt they do hold is government-guaranteed loans from the Covid period – which had low interest rates fixed for six years.
This, according to the report, suggests the subdued macroeconomic environment is leading to the crystallisation of vulnerabilities at some of these firms, with part of the increase being likely to be due to numbers catching up with the historical trend following the end of the Covid-era temporary insolvency protections. Despite this, the Bank does expect higher interest rates to increase insolvency rates.
As for the insolvency rate for medium and large firms, which account for the vast majority of corporate, this was largely muted over 2022 but more recently has begun to increase slightly.
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