UK Business Insolvencies Hit 5-Year High: Which Sectors Are Most at Risk?
In a troubling sign for the UK economy, business insolvencies have surged to their highest level in five years, highlighting the mounting pressures on companies amid rising costs, high interest rates, and subdued consumer spending. According to the latest data from the Insolvency Service, over 26,000 businesses in England and Wales went insolvent in the last 12 months — a 15% increase year-on-year and the highest annual figure since 2019.
The spike in insolvencies underscores the lingering effects of the COVID-19 pandemic, Brexit-related supply chain issues, and persistent inflation. Many businesses that survived the pandemic with the help of government support are now facing the harsh reality of repaying loans in a tougher economic climate.
Most Affected Sectors
Several sectors have been particularly hard-hit, with smaller firms bearing the brunt of the downturn.
1. Construction
The construction industry remains the most vulnerable, accounting for nearly 20% of all insolvencies. Rising material costs, project delays, and cash flow issues have left many firms unable to stay afloat. Smaller subcontractors, often reliant on timely payments from larger developers, are especially at risk.
2. Hospitality and Retail
The hospitality and retail sectors have also seen a sharp increase in business failures. Inflation has led to reduced discretionary spending, while wage pressures and energy costs continue to squeeze margins. Pubs, restaurants, and independent retailers — already battered by COVID closures — are now facing dwindling foot traffic and tighter household budgets.
3. Manufacturing
Manufacturers, particularly small and mid-sized enterprises, are grappling with supply chain disruptions and higher input costs. Energy-intensive manufacturers are also contending with elevated utility bills, further eroding profitability.
4. Real Estate and Professional Services
Real estate firms, especially those involved in property development and commercial lettings, are feeling the pinch of higher borrowing costs and a sluggish property market. Meanwhile, professional services firms, such as legal, accounting, and recruitment agencies, have reported slower client demand, forcing some to restructure or close.
Causes Behind the Surge
The key drivers behind the increase in insolvencies are multifaceted. Higher interest rates, implemented by the Bank of England to curb inflation, have increased debt servicing costs for many businesses. At the same time, inflation — though now easing — has driven up operational costs and dampened consumer demand.
Government support schemes such as furlough payments, business loans, and temporary insolvency protections provided crucial lifelines during the pandemic. However, the withdrawal of these measures has exposed underlying vulnerabilities in many firms’ financial health.
Outlook
Analysts warn that the trend may continue into 2026, especially if interest rates remain elevated and economic growth stays sluggish. Although inflation is gradually declining, consumer confidence remains weak, and access to affordable credit is limited.
For businesses, the path ahead will demand tighter cash flow management, greater operational efficiency, and possibly, strategic restructuring. Meanwhile, policymakers face mounting pressure to support struggling sectors without fueling further inflation.
Insolvency practitioners and business advisors urge at-risk firms to seek help early to avoid collapse. “The earlier a business seeks professional advice, the better the chances of recovery,” said R3, the UK’s insolvency and restructuring trade body.
The rise in insolvencies serves as a stark reminder of the fragility still present in the post-pandemic economy — and the need for resilience in the face of ongoing challenges.
Published: 4th July 2025
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