RSM insolvency predictor model

28 Apr 2023

Insolvencies in the UK are at a 13 year high and are a key economic indicator of the health of the UK economy. To assess if this trend will continue our restructuring advisory team have developed their own predictive model of likely insolvency trends for the next 18 months. The model uses historic insolvency data, and a combination of key economic indicators as its core drivers. It shows that despite the ongoing economic challenges the UK economy faces, such as rising inflation and the ongoing cost of living crisis, we expect overall insolvency numbers to fall rapidly over 2023 and 2024.

The team is well versed in all forms of insolvency and can help you through the process if required. Our specialists help directors and stakeholders by providing tailored solutions to help prevent the slide into insolvency, or advice on how best to use a range of tools as positive steps to drive change.

RSM insolvency trends forecast

Whilst 2023 may see the UK economy avoid a technical recession; there are considerable economic headwinds ahead, with many businesses still feeling the impact of the fallout of the Covid-19 pandemic. Corporate insolvency numbers have increased significantly post pandemic with predictions indicating that this will continue throughout the year, and beyond. We consider this in more detail below, but our fundamental contention is that such predictions underestimate how robust and resilient UK business is in the face of challenge, and as a result, we will see insolvency numbers fall.

The methodology in constructing the forecast is based on underlying macroeconomic indicators that are also reflective of the health of the economy.

Key issues
Key predictions
Key statistics

Key issues

Corporate insolvency is a fundamental 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 and the prevention of Winding Up Petitions 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 might be ‘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.

Key predictions

In our Medium Case, by the end of 2023 overall insolvency numbers will decrease by c24% (Q4 2023 – 5995 compared to our prediction in Q4 2024 of c4,570).
In a Low Case scenario, we believe this could be as large a fall as 28% (potentially much closer to the longer-term average of c4,000 per quarter).
Even in our High Case scenario we are still predicting a fall of 20% by end 2023.
With the Office for Budget Responsibility predicting that the UK could now avoid a technical recession, this fall could be even quicker. Though we note the February 2023 surprise rise in inflation may yet mean that inflation is stickier than widely used predictions have suggested.
We believe the most significant drop in type of insolvencies will be in shut down Creditors Voluntary Liquidations where the catch up from the low points during Covid-19 and government support will largely have been flushed out.
We anticipate there will be a small increase in the number of rescue type processes as larger companies restructure to deal with an overhang of Covid-19 debts.

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