When the economic outlook darkens, suppliers and service providers know that credit risks increase and the prospect of bad debts hitting their bottom-line profits looms ever larger. The canny operators will be trying ever harder to avoid losses altogether, or at least to mitigate the damage.
Unsurprisingly in the current uncertain business environment, more and more creditors are willing to use the courts to collect overdue debts via the Winding Up Petition route, which is the final destination on the creditor enforcement journey.
The challenges facing businesses
UK businesses have had a consistently hard time in recent years, battling against the pandemic, the supply chain disruptions of the Ukraine war, rampant inflation and hugely higher interest rates. More recently, a new series of shocks has made their lives even more difficult, as they face up to the realities of the Autumn 2024 Budget cost hikes arriving at the beginning of April and sharp public spending cuts in the Chancellor’s Spring Statement.
On top of all of this, they have now been plunged into a global trade war as America executes a bizarre dance of policy hokey cokey over import tariffs. This started with the so-called Liberation Day on 2 April and is continuing through a series of frantic bilateral trade negotiations aimed at lessening the impact of the ‘reciprocal’ tariffs. The continued uncertainty is causing a serious threat to the overall UK economy and to its intrepid entrepreneurs.
What does this mean for the UK economy?
The UK exports goods to the value of £60bn a year to the USA, indicating the scale of this problem. The possible negative impact unless the tariff burden can be reduced has now been spelt out by the IMF, which reacted to the Trump tariffs by reducing its forecast for UK GDP growth for 2025 from 1.6% to 1.1% and for 2026 from 1.5% to 1.4%.
Since then, the respected EY Item Club has revised its 2025 forecast down to just 0.8% growth and for 2026 down from 1.6% to only 0.8%. Worse still in terms of sustained long term growth, its business investment projections have been significantly downgraded to 0.3% for 2025, down from 2% predicted in their previous forecast.
Business confidence has fallen sharply to levels not seen since late 2022 according to the latest research by the Institute of Chartered Accountants. Consumer confidence is also very weak. The likely outcome, at least in the short term, will probably be ‘hoarding’ behaviour. Consumers will save instead of spending, or at least they will spend less. Business leaders will put investment plans on hold, or else cancel projects altogether.
How is this affecting business failure levels?
The latest data on corporate insolvencies from the Insolvency Service covers the month of March 2025, during which there were 2,225 insolvencies, a rise of 15.5% on the same month last year. This figure was also 10.8% higher than February 2025 and 9% up compared to January 2025. This looks very much like the start of a sustained upward trend.
The less volatile statistic of the rolling twelve-month total up to March 2025 was 25,649 against 26,521 in March 2024 (3.3% lower now) and the all-time peak of 27,182 in February 2024 (5.6% down now). Although these figures are lower, if March’s individual monthly rise continues, it won’t take long before we are pushing up to and beyond the previous peak.
Creditor enforcement action
The one striking feature of the latest insolvency statistics is a clear surge in Compulsory Liquidations (CWUs), the creditor-instigated insolvency procedure. There were 1,085 CWUs in Q1 2025, compared to only 934 in Q1 2024, a jump of 16% and a clear indication that creditors (in particular HMRC) are increasingly prepared to go down the Winding Up Petition route for debt enforcement.
This is not good news for struggling businesses, which are dealing with cash flow problems at a time when uncertainty is making banks and other lenders ever more risk aware and cautious about supporting companies with temporary or longer-term challenges.
Creditor’s Voluntary Liquidation (CVLs)
There was a significant increase in insolvency filings from mid-2023 to the summer of 2024, driven almost entirely by a surge in Director-driven CVLs. That trend seems now to have run out of steam. There were 4,721 CVLs in Q1 2025 compared to 4,638 in Q1 2024, a rise of only 2%, rather than the 16% growth in CWUs in the same period.
How badly are hospitality and retail businesses faring?
By general consensus, these low-margin, labour-intensive sectors will be worst affected by the Autumn Budget cost increases. The question is whether they are seeing any noticeable uplift in insolvencies. The answer so far is a resounding ‘no’.
Hospitality failures have averaged 273 per month since the Autumn Budget, compared to 323 per month in the same period in 2023/24 and 300 per month in the twelve months up to the Budget. For retail the picture is similar. Insolvencies have been 147 per month since the Budget, whereas they were 178 per month in the same months in 2023/24 and 170 per month in the twelve months up to the Budget. Far from rising, insolvencies in both sectors have fallen substantially.
The explanation may well be nothing to do with these industries holding their breath and hoping for the best ahead of the impact of the Budget cost increases at the beginning of April. What was happening throughout 2023 and much of 2024 was the cost-of-living crisis negatively affecting the ability and/or willingness of customers to spend, so that lower revenues were driving marginal consumer-facing businesses over the edge.
The impact of the Autumn Budget is yet to be fully seen, potentially pushing insolvencies back up to and possibly beyond 2023/24 levels later this year and through into 2026.
At Opus, we have extensive experience assisting business owners and directors with concerns and challenges, and we will always work with you to find the best solution for you and your business. If you would like to speak to us, one of our Partners would be more than happy to have a non-obligatory, confidential chat with you. We can be contacted at rescue@opusllp.com or call us on 0203 995 6380 and we will arrange for a call with one of our specialists.