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Businesses in England and Wales collapse at fastest pace since 2009 as energy costs bite

businesses Shop closing down and selling cut price clothing at Turnpike Lane in Wood Green on 19th May 2022 in London, United Kingdom. With the UK population struggling to make ends meet, the cost of living crisis refers to the fall in real disposable incomes after taxes and benefits that the UK has experienced since late 2021. It is being caused predominantly by high inflation outstripping wage and benefit increases and has been further exacerbated by recent tax increases. While energy and fuel prices playing a crucial role in the cost of consumer goods. (photo by Mike Kemp/In Pictures via Getty Images)
UK businesses failed at the highest rate since 2009. Photo: Mike Kemp/In Pictures via Getty

UK businesses are collapsing at the fastest pace since the height of the global financial crisis as surging energy costs, weakening demand and rising borrowing costs drive thousands of companies out of business.

There were 5,629 insolvencies in England and Wales in the second quarter — the highest level since 2009, according to the Office for National Statistics (ONS). The jump represents the most since the third quarter of 2009.

Insolvencies slumped in 2020 as the government rolled out support to protect businesses during the pandemic, the ONS said.

However, the number of failures has since spiked as companies grapple with fresh challenges even after lockdowns ended.

Read more: UK construction returns to growth but optimism 26-month low

Businesses cited the sharp jump in energy bills as the biggest problem, while difficulties paying debt, the rising costs of raw materials and supply chain disruptions also took their toll.

While the squeeze on finances has hit all companies, construction, retail and accommodation and food services suffered the highest number of insolvencies in the first half of the year.

Construction businesses accounted for 20% of all insolvencies in the first half of 2022, with the industry registering 2,083 failures. That followed by the wholesale and retail sector at 14%.

Meanwhile, 30% of small firms with 10 to 49 employees said energy was their top worry.

Of the respondents, 22% cited energy prices as amain concern in August, up from 15% in February, before Russia’s invasion of Ukraine and the subsequent surge in gas prices.

Meanwhile, over one in 10 companies said they faced a "moderate-to-severe" risk of insolvency in August.

The government has outlined support to help firms and public sector bodies struggling with their energy bills. But, the scheme will run for only six months, unlike the two-year programme aimed at households.

Watch: Why are gas prices rising?