The number of people in England and Wales declared insolvent reached a six-year high in the second quarter of the year.
Consumers are continuing to suffer from high inflation following the pound’s drastic fall after the Brexit vote, slower wage risesand growing debt levels.
There has been suggestion that the Bank of England are assessing whether to raise the cost of borrowing with an adjustment to the base rate to help bolster the economy and the value of the pound although there is some suggestion that even a small uplift in interest rates may force many more consumers with significant debt levels to tip over into insolvency.
Looking at the figures that the Insolvency Service recently published, individual insolvencies totalled 28,951 in Q2, a4.4% hike on the previous quarter and a 27.3% rise on the same period last year.
Since 2015, we’ve been seeing a gradual rise in the number of individuals filing for insolvency and the latest figures have been driven by record numbers of people taking out individual voluntary arrangements – a process that allows the debtors to agree to repay creditors some or all of that they owe across an agreed period of time.
As for corporates, the underlying number of registered insolvencies decreased in Q2 2018 although higher than the same quarter in 2017.
A fall in compulsory liquidations, administrations and underlying creditors voluntary liquidations helped contribute towards a 12.4% decrease in companies declaring themselves insolvent compared to Q1.
Construction leads the way for the highest number of insolvencies
Once again, the construction industry had the highest number of insolvencies in the 12 months ending Q2 2018 with 2,197 new company insolvencies recorded in the sector. Many of these construction businesses struggle with cash flow issues via eitherlate payment on invoices, paying taxes as a lump sum, incurring penalties on late tax payments and making several payments at the same time at a specific time.
Couple this with high levels of unprofitability and the high cost of credit and you’ve got an industry susceptible to high levels of unsustainable debt.
Challenging economic times
Beyond the construction sector, many other businesses will have found the increase in business rates, pension enrolment, increase to the national living wage and possibly the fall of the pound dependant on the firm’s business model, a very challenging economy in which to survive.
The pain is unlikely to get any easier in the short-term and whilst the number of corporate insolvencies recorded between April and June were lower than seen in Q1, there are numerous businesses out there that are just about hanging on in a market with many economic challenges with which to navigate.
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