The Looming Storm: Businesses face an uphill battle in 2024 amidst rising borrowing costs and consumer budget pressures
As we start 2024, the economic landscape appears increasingly turbulent for businesses, with higher borrowing costs and constraints on consumer budgets creating a perfect storm. A recent article I read in the Evening Standard highlighted the alarming surge in insolvencies, echoing the concerns raised by official figures from the Insolvency Service. I then saw that the data for the first 11 months of 2023 surpassed the total company failures reported in the entirety of 2022, sounding the alarm for businesses across various sectors.
What were the key findings:
(1) Staggering increase in company failures
Official figures from the Insolvency Service reveal a stark reality – for almost 5 years (from Jan 2019 to November 2023) there have been 89,148 corporate insolvencies, of which there were 23,153 between January 2023 and November 2023. So, the 11 months of 2023 account for over ¼ of the corporate insolvencies for the last 5 years. This unprecedented rise in insolvencies points towards a challenging economic climate that businesses must navigate.
(2) Sectoral vulnerabilities
The construction and business services industries find themselves particularly vulnerable, contributing to almost 20% of the total insolvencies. The ripple effect is felt across the supply chain, impacting both large corporations and small enterprises. The challenges faced by these sectors are multi-faceted, driven by increased borrowing costs and consumer budget constraints.
(3) Hospitality and retail struggling
The hospitality and retail sectors, pillars of the economy, have not been immune to the economic headwinds. Higher energy prices, mounting pressure on consumer finances, and soaring borrowing costs have collectively contributed to the challenges faced by businesses in these sectors. A substantial 17% of all insolvencies stem from the hospitality sector, while retailers account for 14%.
Where are businesses being challenged:
(1) Higher energy prices
Rising energy prices have dealt a severe blow to businesses, particularly in the hospitality and retail sectors. Increased operational costs have eroded profit margins, leaving many businesses grappling with the challenge of staying afloat.
(2) Consumer budget pressures
As borrowing costs surge, consumers are tightening their belts. This shift in spending behaviour directly impacts businesses, especially those dependent on discretionary spending. Retailers and hospitality establishments are feeling the pinch as consumers become more cautious with their expenditures.
(3) Borrowing costs surge
The financial strain on businesses is exacerbated by the surge in borrowing costs. Companies that relied on credit to fuel their operations now face the daunting task of repaying loans in an environment where interest rates are on the rise. This is in addition to companies having to pay back the Bounce Back Loans that they took during the Covid pandemic.
In light of the challenges above, it is crucial for accountancy firms to be proactive in assisting businesses that may be teetering on the edge of insolvency. AABRS will offer your clients completely independent and free advice to guide both of you through these demanding times.
Conclusion
In conclusion, as businesses grapple with the fallout from higher borrowing costs and constrained consumer budgets in 2024, it is imperative for your clients, their professional advisers and any other invested stakeholders to collaborate and navigate these challenges together. Proactive measures, like seeking advice as early as possible from an insolvency practice like AABRS, can be the lifeline that stressed directors need to weather this economic storm.
To discuss a specific situation, confidentially, please reach out to me on 07968 849335 or lv@aabrs.com . We would be only too happy to help and advise.