Insolvency Outlook
According to recent forecasts, the number of UK business insolvencies is projected to increase by as much as 10% in 2025. This would put levels on par with those seen in the 2008 financial crisis.
PwC recently warned that an uptick in market sentiment and consumer appetite is required to avoid the risk of corporate insolvency levels in 2025 remaining at some of the highest levels seen in decades.
Why such a fragile business environment?
It’s fair to say the outlook is a little gloomy across the board for businesses in 2025.
- Business investment and trade are likely to suffer through the impact of the national insurance rise and major global uncertainties.
- The rise in employer national insurance contributions means businesses face tough decisions on costs. Unemployment estimates have been revised upwards to 4.5% by the end of 2025
- Elevated borrowing costs remain a big concern, with high interest rates still at play
- Inflation is expected to remain above the Bank of England’s target until the end of 2026, driving up business costs
- The outlook for trade is expected to remain challenging due to trade barriers with the EU, conflicts in Europe and the Middle East, and of course the threat of tariffs coming from Donald Trump in the USA.
- Reductions to business rates relief will serve to put additional pressure on profits.
- The appetite of creditors, especially HMRC, to pursue debts more aggressively will no doubt add to the financial stress businesses face
Which industries will feel the biggest impact
The outlook for 2025 will be challenging generally for small-to-medium sized businesses, many of whom rely heavily on shareholder and lender support to remain solvent. However, certain sectors are expected to be more vulnerable to insolvency this year – including retail, construction, hospitality and manufacturing.
- Retail: Analysis from PwC points to the fact that the retail sector was the worst hit in December, with insolvencies rising 30% month-on-month, and the equivalent of six retailers going out of business every day. According to PwC, Christmas trading was subdued for many businesses, and this could result in an increase in retail insolvency filings in the early part of 2025 as retailers take stock of their results and look toward the impending tax changes in April. Bricks-and-mortar stores in particular are expected to struggle as online shopping continues to dominate
- Hospitality: This sector has already seen a significant increase in insolvencies since the Covid-19 pandemic. It will likely face continued pressure due to changing consumer behaviours and rising operational costs, as well as the national minimum wage and national insurance changes.
- Construction: Construction continues to account for a considerable number of corporate bankruptcies as a result of the perfect storm of high inflation, skills shortages, high energy prices, high costs of materials, supply chain disruptions, and tougher regulation.
- Manufacturing: PwC research also points to the fact that failures in the manufacturing sector were also up by over 25% last year.
How can businesses better protect themselves the insolvency storm ahead?
Of course, we always hope that such predictions don’t play out as expected. But whether the insolvency rate rises or stay flat, times are going to be challenging for UK businesses this year.
Good financial governance and strong support are a vital front line of defence against insolvency. Early intervention when financial distress looms, and the advice and guidance of an experienced insolvency law firm can help in dealing with cash flow challenges, funding and debt issues, and boosting investor and shareholder confidence.
There are several ways Leverets can help:
- Corporate Governance Support: helping ensure that directors understand their legal duties, navigate their responsibilities and avoid personal liability.
- Mitigating Insolvency Risks: Advice on mitigating risks and avoiding the long-term consequences of insolvency, including guiding your company through complex disputes or avoiding breaches of fiduciary duties.
- Restructuring Options: Part 26A restructuring plans, refinancing, raising new funding, partial or total sell off and other options such Company Voluntary Arrangements (CVAs)
For more information on how Leverets can protect your business from insolvency in 2025 get in touch today.
