RSM insolvency predictor model

• Corporate insolvency is a fundamental and healthy part of our overall UK economy allowing businesses to be saved and capital to be recycled.
• The long-term trend is that around 4,000 companies typically enter an insolvency process every quarter.
• Government support during the Covid-19 pandemic, the prevention of Winding Up Petitions and general creditor forbearance supressed the insolvency numbers from Q1 2020 though to Q3 2021.
• Since then, there has been considerable increase in key categories of insolvencies (Creditors Voluntary Liquidations and Compulsory Liquidations) and current corporate insolvency numbers are significantly above the long-term averages.
• Some of this is the ‘catch up’ from insolvencies which were prevented or delayed, but the rise in inflation, supply chain issues, cost of energy and overall squeeze on standards of living are having a notable effect on overall insolvency numbers.

If you would like any further information, please contact Gareth Harris.

Retail

The retail industry has been hit hard by a wave of black swan events in recent years culminating in the high levels of insolvencies we are now seeing. More recently, the cost-of-living crisis and inflationary cost pressures have been dragging on balance sheets across the sector. Apart from a few well publicised administrations of larger high street retailers, smaller businesses are bearing the brunt of the pain. Without the same amount of capital, borrowing power, and economies of scale available to larger businesses, small and independent retailers have found it hard to manage profitability with margins being squeezed by rising costs and lower demand. Though improving, retail sales are still down year on year and with consumer confidence still in negative realms, we don’t expect any huge spikes in sales any time soon. This all amounts to a tricky trading environment and there may be more pain yet before we begin to see insolvencies plateau. 

Snapshot of key statistics

• 973 retail insolvencies were reported in Q2 2023.
• There have been on average c10-11 retail Insolvencies per day in Q2 2023.
• Retail insolvencies in the first 6m of 2023 are 27% higher than in the same period last year.
• Retail insolvencies in the 12m ending Q2 2023 are 45% than in the 12m ending Q2 2022.

If you would like to know how we can help your business, please contact Damian Webb or Tom Straw.

Manufacturing 

The events of the last few years have impacted the manufacturing sector more than most. Challenges navigating political and economic volatility following Brexit and the war in Ukraine, the continuing skills gap shortage, fluctuating demands and the sector being one of largest greenhouse gas emitters in the UK, have all contributed to the levels of insolvencies. The latest CIPS UK Manufacturing Purchasing Managers’ Index which has continued on a downward trend shows that demand remains low and that the sector is stagnant.

The extent of these conditions has led to the rise of insolvencies and if consumer demand continues to increase, we will see manufacturers struggle to function steadily resulting in greater levels of insolvencies. Now, more than ever, an industrial strategy is urgently needed from government to support the sector, its people, and to help revitalise the wider economy. 

Snapshot of key statistics:

• The general pre-Covid average for Manufacturing insolvencies was c370 per quarter, currently insolvencies are 40% above this historical average.
• Manufacturing insolvencies in the first 6m of 2023 are 22% higher than in the same period last year.
• Manufacturing insolvencies in the 12m ending Q2 2023 are 29% higher than in the 12m ending Q2 2022.
• Manufacturers of food products and fabricated metal products account for 24% of the insolvencies in Q2 2023 and 20% for same period last year.
• We predict insolvencies to fall but remain 20% above the pre-Covid average level at the end of 2023.

If you would like to know how we can help your business, please contact Damian Webb or Chris Lewis. 

Construction

The construction industry outlook is challenging with new work pipelines declining. Weakening demand and buyer affordability have caused a slowdown, leading housebuilders in particular, to act cautiously to protect margins. 

Labour and supply chain inflation have impacted the sector, resulting in litigation and financial challenges due to unwinding problematic contracts. Access to funding options remains a historical struggle, exacerbated by ongoing challenges. 

We expect an increase in insolvencies over the summer months on a gradual basis, rather than a spike. This will continue through to the end of the year. The sector has shown resilience and factors such as the award of large infrastructure projects has contributed to industry optimism. However, funding, a shortage of labour and postponements in contract start dates continue to challenge the industry.

Snapshot of key statistics

• Construction insolvencies in Q2 2023 are up by 178% since the low in Q1 2021.
• There have been c12 Insolvencies per day in Q2 2023.
• Construction insolvencies in the 12m ending Q2 2023 are 14% higher than in the 12m ending Q2 2022.
• Construction of buildings and related activities accounts for 95% of insolvencies in the first 6m of 2023 whilst civil engineering is only 5%.
• Construction represented 18% of all CVLs in Q2 2023.

If you would like to know how we can help your business, please contact Gordon Thompson and James Hawksworth.