Hospitality contributes to 10% of UK insolvencies

8 August, 2023

An analysis carried out by Law firm, Shakespeare Martineau revealed that in the first half of 2023:

  • The hospitality sector accounted for 10% of insolvencies, marking it as the United Kingdom's fourth-largest sector in this context.
  • 759 enterprises filed for administration between January 1st and June 30th, 2023.
  • Within this total, 79 establishments were from the hospitality sector.

This data points to a significant 22% increase when compared to the statistical figures from 2022.

The sectors facing the most significant impact included retail, manufacturing, construction, hospitality, and real estate, contributing to 57% of all insolvencies, as indicated by data from The Gazette Official Public Record.

Leading the statistics was Greater London, responsible for 25% of the filings, followed by the North West (15%) and the South East (11%).

Andy Taylor, partner and head of restructuring at Shakespeare Martineau, commented:

"Given the prolonged economic uncertainty that is plaguing the country, the increase in the number of businesses filling for administration is no surprise.

HMRC is definitely taking a harder line than in previous periods and its threat of enforcement is certainly pushing some businesses towards considering their options, with some seeking administration as an alternative to facing a winding up petition.

We're seeing a steady flow of corporate failures. Should some other 'bad news' rear its head, then that is only likely to increase. Businesses and individuals need to see interest rates and inflation come down. With a period of stability, we will see confidence increase."

This update follows a cautionary message from UKHospitality, alerting about the additional strain on the sector's financial struggles due to the recent increase in interest rates. On the 3rd of August, the Bank of England executed its 14th successive elevation of interest rates, moving from 5% to 5.25%.

During this announcement, the Bank communicated, for the first time, its intention to sustain elevated interest rates until UK inflation - the pace at which prices ascend - is effectively managed. The Bank emphasised its commitment to maintaining rates that are adequately constraining over a significant duration.

Kate Nicholls, chief executive of UKHospitality, said:

"Hospitality businesses are particularly exposed to further rate rises, due mainly to the Covid loans many were forced to take out during the pandemic.

Yet another rise in interest rates only exacerbates the financial challenges many are grappling with, alongside high energy costs, food and drink inflation and labour shortages."

Andy Taylor added:

"The money in people's pockets is now worth less so they are less likely to purchase none essential items and services, which is impacting the retail and hospitality sectors.

Consumer spending is shrinking and footfall on the high street and in restaurants is declining as a result. The pressure is also on businesses as they face higher borrowing costs and energy expenses, so they are being squeezed from both sides.

There is still uncertainty in the geopolitical landscape, which is impacting business confidence. With cash flow becoming tight, businesses are at a greater risk of going under. Supply chain issues and the rising cost of importing goods, especially in the automotive industry, have created a challenging juggling act for businesses to maintain profitability."

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