Surging interest rates set to risk more UK firms going bankrupt: Report

By Aysu Bicer

LONDON (AA) - Companies in the UK are facing a bleak financial future as businesses grapple with surging interest rates in the aftermath of the COVID pandemic, according to a report by a London-based think tank.

The report by the Centre for Economic and Business Research (CEBR) shows 28,000 companies, with 7,000 in each quarter of 2024, are at risk of bankruptcy, with over 6,700 business insolvencies recorded in the second quarter of 2023.

During the height of the pandemic, government support measures largely shielded businesses from financial collapse. The figure showing companies at risk has more than doubled since the pandemic.

Insolvencies have surged by 50%, demonstrating the gravity of the situation since the pre-pandemic period of 2019. In contrast, the quarterly insolvency average stood at 4,100 between 2015 and 2019.

The rapid increase marks the highest level of business failures since the 2009 financial crisis, despite the possibility of business accountings collapsing in 2020 and 2021, were it not for pandemic-induced government support.

Several high-profile collapses, such as retailer Wilko and the construction giant Buckingham Group, have been making headlines. The economic turmoil is underscored by the shared office provider WeWork being on the verge of bankruptcy.

"Such businesses paying back loans will struggle amid the high-interest rate environment. Higher borrowing charges add to the costs faced by businesses already paying loans and deter investment in new projects and equipment," said the report.

"CEBR is currently forecasting further rate rises from the Bank of England to a peak rate of 5.75%, meaning the worst is yet to come in terms of borrowing costs, quite apart from the impact of fixed term loans made when interest rates were lower being rolled over at the new higher rates," it added.