Rising interest rates will cause thousands of small- and medium-sized enterprises (SMEs) to file for insolvency next year, according to a new report from the Centre for Economics and Business Research (CEBR).
The thinktank has predict that approximately 7,000 SMEs will go bust during every quarter of 2024, as pandemic-related debt, higher borrowing costs and the cost of living crisis take a toll. The retail and hospitality sectors are expected to be the worst affected.
The CEBR report comes amid an ongoing funding crisis for SMEs, as banks have been reducing their lending, sending many business-owners to alternative lenders such as peer-to-peer platforms instead.
CEBR has forecast at least two more rate rises from the Bank of England in coming months, with rates peaking at 5.75 per cent.
“The worst is yet to come in terms of borrowing costs, quite apart from the impact of fixed term loans made when interest rates were lower being rolled over at the new higher rates”, said a CEBR spokesperson.
“Looking ahead to the future, CEBR expects the rate of business insolvencies to remain high as interest rates continue to rise, pushing up debt repayments to unsustainable levels for some businesses.
“Our models suggest that there could be 7,000 insolvencies per quarter on average across 2024. Furthermore, CEBR is forecasting a recession in the UK, with two consecutive quarters of contraction in GDP in the fourth quarter of 2023 and first quarter of 2024.”
During the second quarter of 2023, there were more than 6,700 business insolvencies in Britain. This is 50 per cent higher than the number of insolvencies during the same quarter of 2019, pre-pandemic.
Business-owners and alternative lenders have slammed the government’s handling of the SME funding crisis.
“Why the government is continuing the squeeze the life out of hard-pressed businesses is a complete mystery,” said Steven Mooney, chief executive at angel investment platform FundMyPitch.
“Our entrepreneurs and innovators took a serious beating during the Covid-19 pandemic, yet all of them complied with lockdown rules despite losing huge sums of money.
“Their reward for such suffering? Spiralising interest rates and no sign of a lifeline from the government. If things don’t change soon then we’re on a path to simultaneously destroying and a new generation of businesses and crashing the economy.”