Analysis by KPMG of notices in the London Gazette shows that the number of companies entering administration fell from 327 in the first quarter of the year to 280 in the second quarter. This is also a fall when compared to the same period last year (Q2 2016) which saw 294 corporate insolvencies.
However, while the overall numbers have softened slightly, KPMG’s analysis shows the environment still remains tough for retailers and companies across the wider consumer and leisure industries with 27 retailers entering insolvency over the quarter including high street brands Jaeger, Joy and Jacques Vert, and jeweller Theo Fennell.
Blair Nimmo, head of Restructuring at KPMG, says that he expects the dip seen in Q2 to level back out over the second half of the year, as companies contend with further economic uncertainty and a continued gradual slowdown in consumer spending.
He said: “On the face of it, the latest figures seem encouraging and certainly reflect what we’re seeing on the ground, with much of our current work revolving around profit improvement, cost reduction and working capital management rather than insolvencies.
“However, we should not be lulled into a false sense of security, particularly as there are still certain hotspots which give cause for concern. Retailers, particularly those mid-range high street fashion brands, continue to battle in the face of increased competition, mounting cost pressures and a squeeze on household expenditure. There is certainly a number of these businesses who face a tough few months ahead.”
Blair Nimmo added: “There are other clouds on the horizon. The impact of Brexit remains to be seen and the recent election has undoubtedly introduced greater uncertainty resulting in a negative effect on consumer and corporate confidence.
“While inflation for the month of June was down for the first time in over a year, it’s still well above average earnings growth, and there is continued speculation that interest rates may soon rise. Additionally, adverse exchange rate movements are starting to impact on certain sectors, with businesses expressing concern over their ability to pass on additional costs to their customers.
“This concern echoes the results of KPMG’s recent survey of CEOs which indicated that the majority of UK business leaders are subdued about their growth prospects over the next three years. Indeed, one in two CEOs believe their business will grow by less than two per cent over the next few years, while 74 percent warn that inflationary increases mean they will have little choice but to pass on increased costs to their customers.
“All of which leads me to conclude that the decline in insolvency numbers seen over the last three months may just be a temporary blip.”
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