Weak consumer demand to blame for business insolvencies

Recent research found that in 2018, insolvencies crept back up to levels last seen in 2014 after three years of relatively flat numbers, and according to affected firms, this was mainly because of weak consumer demand.

Government figures show that while the weekly amount spent by households hit its highest level since 2005 last year, much of that spending went on housing and transport, and this has had a big impact on consumer-facing businesses, such as retailers and the restaurant sector.

This has also had a knock-on effect on businesses at one remove from the consumer, such as manufacturers supplying consumer products, logistics firms and shop fitters. As a spokesman for insolvency and restructuring trade body R3 commented, every business is part of a network and one struggling business will affect others.

In fact, R3’s research found that one in four UK firms took a financial hit in the first six months of last year following the insolvency of a supplier, customer or debtor, which illustrates the reach and impact of the ‘domino effect’.

He added that uncertainty around the shape of the final Brexit deal – or no deal – and future EU-UK trading relationships, is already forcing businesses to hold off on investment decisions, which again affects their suppliers and customers.

R3 also points out that Government proposals to give itself priority status for repayments in insolvencies may well have a negative impact on the ability of small firms to finance themselves this year.

Tim Close, Insolvency Partner at Milsted Langdon, said: “Research has found that the number of insolvencies during 2018 has increased due to weak consumer demand.

“If your business is struggling with finances and you are unsure about the options available to you, then it is important that you seek specialist advice at the earliest opportunity.”

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