Administration List | UK Administrations will rise in 2023
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The U.K. is expected to remain in recession for the whole of 2023, with the Office of Budget Responsibility (OBR) predicting that the U.K. economy will shrink by 1.4% over the year as a whole. The Bank of England has also predicted a protracted U.K. recession.
Both institutions are using the definition of ‘technical recession’ in their forecasts. This is the definition most widely used in the media, which classes a recession as negative GDP across two consecutive quarters.
Both the causes and the impacts of the recession will continue to negatively impact businesses in the U.K. The number of businesses in administration is also expected to rise, along with those being liquidated.
In November 2022 there were 2,029 company insolvencies, a 21% increase on November 2021 and a 35% increase on the equivalent period in 2019. In November 2022, 474 winding up petitions were filed, nearly four times as many as the same month in the previous year.
Catherine Atkinson, a director in PwC’s insolvency team, stated that this rise in winding up petitions is “ a key bellwether of creditor sentiment”. This sentiment is expected to continue on into the new year.
The U.K. is not unique in experiencing an economic downturn. Barclays Capital Inc. has published a report saying that 2023 will go down as one of the worst for the world economy in four decades. However the U.K. is expected to be hit especially hard in comparison to other G-10 nations.
In its 2023 macro outlook, Goldman Sachs predicted a 1.2% contraction in U.K. real GDP across the year. The Office of Budget Responsibility’s own forecasts are worse still. It thinks the recession will lead to a drop of 2% in GDP over the course of the year. It also estimated that a key measure of living standards, the real household disposable income, will fall by 4.3% in 2023, reaching its lowest point since 2013-14.
These predictions are drawn from prolonged and greater increases in food and energy costs in the U.K., leading to higher inflation peaks than in other developed nations. In October 2021 U.K. inflation reached 11%, the highest recorded since the early 80s. Britain remains the only G7 economy whose GDP has not recovered to its pre-pandemic baseline.
The cumulative impact of rising interest rates, increased energy costs, inflation, and disrupted supply chains are putting hospitality, construction, manufacturing and engineering sectors especially at risk of entering administration, and ultimately being liquidated. Here at Administration List we predict that the total level of U.K. insolvency could reach 32,000 in 2023.
The construction industry looks to bear the brunt of the fallout. A new report by Red Flag Alert warned of a “perfect storm” of factors that could lead to over 6,000 company insolvencies in the U.K. construction sector over the coming year. In November 2021 more construction administrations were recorded than in any single month since before the COVID-19 pandemic.
As well as being vulnerable to rising operational costs and supply issues, construction, manufacturing and engineering sectors also experience high levels of competition, which can lead to reduced margins, and lower net profits. Those whose models necessitate paying for services or supplies upfront are at a further disadvantage.
Take a look at the latest construction companies that have fallen into administration.
According to Ben Harwood, Head of Asset Recovery at Naismiths, the impact of inflation on fixed-price contracts is also responsible for these latest construction administrations: “90 per cent of the ones we’re seeing at the moment are companies that have had fixed-price contracts which they’ve agreed to and either they’re not able to fulfil them, or the costs have just driven all the margin out and into an administration process.”
For buyers specialising in distressed acquisitions, 2023 will present a raft of opportunities for investment. The window of these opportunities will be narrow and having access to information as it is released will give interested parties the competitive advantage.
Administration List provides up to the minute insights and information about businesses across the U.K. going into administration. Our listings include details of the appointed administrators, companies in liquidation, and winding up petitions filed.
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