More South West firm go under as high interest rates and inflation take their toll

September 1, 2023

A sharp rise in the number of firms in the South West becoming insolvent has made the region the worst in the country for increasing business instability.

The latest analysis by insolvency and restructuring trade body R3 reveals an increase of just under 40% in insolvency-related activities in the region in July compared to the same month last year.

The 166 cases of insolvency-related activity in the region in July, as shown in data provided by Creditsafe, amounted to a 39.5% year-on-year rise – higher than any other part of the UK.

The South East, with a 33.3% rise, and Scotland, with 30.8%, were the second and third worst performers.

R3 said the activity, which included liquidator appointments, administrator appointments and creditors’ meetings, reflected a hardening of trading conditions sparked by higher interest rates and the cost of living crisis among other factors.

R3 South West chair Charlotte May, pictured, said: “The near 40% yearly rise in insolvency-related activity in the South West reflects the ongoing mix of challenges businesses are currently facing.

“Inflation and interest rates are still high, consumer spending is low and wage pressure keeps mounting, which is taking a toll on business confidence and meaning more firms are turning to an insolvency process to resolve their financial issues.”

Charlotte, associate director for South West and Wales at Manolete, the UK’s leading insolvency litigation finance company, said it was crucial business owners and directors kept a close eye on their finances and acted quickly to as soon as they become concerned.

Taking action at an early stage opens up more potential solutions and gives you greater control over your situation than if you'd waited for issues to escalate,” she added.

The R3 report echoed July findings of the last NatWest South West PMI Business Activity Index, which measures the month-on-month change in the combined output of the region’s manufacturing and service sectors.

It showed a reduction in new orders received by companies, with anecdotal evidence indicating that a general slowdown in market conditions and higher interest rates had weighed on customer spending.

While the rate at which sales declined in the South West remained modest overall, it was steeper than that seen across the UK as a whole.

NatWest South West regional board chair Paul Edwards said firms in the region had remained under pressure at the start of the third quarter as a modest decline in new work led to another slight drop in business activity.

“Higher borrowing costs and increased economic uncertainty meant that client budgets are not only being squeezed, but businesses are more hesitant to commit to orders right now,” he added.

“The prices data show that inflationary pressure may be stickier than anticipated, partly due to stronger wage inflation, although this contrasts with firms feeling more upbeat when assessing the 12-month outlook.”

Employment across the South West remained a bright spot, he said, as firms continued to add to their payrolls amid expectations of rising business requirements in the months ahead.

“It was particularly encouraging to see that the rate of job creation in the South West was the best seen of all 12 monitored UK regions,” he added.



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