Credit Focus – Edition 2: Navigating the UK Economy, Insolvencies, and Insurance Market Trends

Construction was singled out as one of the worst hit sectors by insolvency in 2024 with a total of 4,032 insolvencies in England and Wales, representing 16.3% of all corporate cases captured⁴.

Recent analysis of profit warning data suggests the industry is particularly exposed to financial difficulty, due in part due to the nature of contract cycles and the challenges of cash flow management that contractors and subcontractors are subject to⁵.

The latest S&P UK Construction Purchasing Managers’ Index (PMI) report which tracks growth in the sector, indicated a sharp decline in output, with weak demand conditions, attributed to continued caution among clients, squeezed budgets and lacklustre economic performance. The PMI registered 44.6 in February 2025, down from 48.1 in January 2025, represents the lowest level in nearly five years and the second consecutive month below the neutral 50.0 threshold⁶. This was led by ‘considerable reductions in residential building and civil engineering work, while a degree of resilience was reported for commercial construction activity’.

S&P reports that despite the decline, the industry remains optimistic of improvement with almost 40% of surveyed firms expected an upturn in output in the year ahead, and only 17% predicted a decline. The government introduced its Planning and Infrastructure Bill to Parliament on 11th March 2025, promising to have a ‘seismic’ impact on the construction industry⁷, removing hurdles, streamlining planning decisions and speeding up processes to assist in their commitment in building of 1.5million new homes.

UK Company Insolvency Figures – By Industry⁴

This year, UK manufacturers will continue to face many of the same challenges as 2024. In a recent survey by MAKE UK⁸, 92% of businesses cited employment costs as the key risk to their company’s growth in 2025 following the Autumn 2024 Budget and 70% expect a significant or moderate increase in energy bills.

The United States President’s recent announcement of 10% tariffs on UK goods exported to the USA and 25% tariffs on British made automobiles, steel and aluminium will now present many manufacturers with an additional challenge which could be ‘damaging for the sector and result in the loss of jobs’⁹.

Businesses will need to find the balance between managing these difficulties against growth opportunities, and 69% surveyed planned on passing costs onto their customers to offset the rising input burdens. Geopolitical unrest has continued to have an impact on the sector, with the vulnerability and disruption of supply chains still a key concern for many. Increased interest rates have made borrowing more expensive, impacting manufacturers’ abilities to finance operations and invest in new technologies or expanded capacity.

Despite this, there is optimism in the sector, a testament to its resilience; with many ready to evolve to meet the challenges ahead by reinventing strategies, embracing innovation, expanding product portfolios and exporting to new countries. Many hope the upcoming publication of an industrial strategy in Spring 2025 will be a game-changer for investment on their roadmap for 2035.

UK Company Insolvency Figures – By Industry⁴

After falling for two consecutive years, retail sales increased during 2024 however, this growth was relatively modest at +0.7%¹⁰. There were signs of optimism, with recovery seen in some areas, namely groceries seeing growth for the first time since 2020¹¹, benefiting from the lower inflation rate. The number of insolvencies also declined in 2024 by 13% compared to 2023.

In 2025, UK retailers are likely to still experience a squeeze on their profit margins due to a combination of pressure on revenue and rising costs. The retail and hospitality sectors will be particularly affected by increased labour expenses, driven by the rise in the national living wage, higher National Insurance contributions, and the implications of the Employment Rights Bill.

On the contrary to this, the GfK consumer index showed that consumer confidence rose in February by 2 points to -20¹², suggesting an improvement with many households now more optimistic about their personal finances and general economic outlook.

UK Company Insolvency Figures – By Industry⁴

VisitBritain forecasts an increase in international tourism to the UK for 2025, with both visitor numbers and spending expected to rise compared to 2024¹³. However, the UK's hospitality sector is still expected to continue to face significant economic headwinds. Rising staffing and operational costs, exacerbated by the Autumn Budget 2024 and the forthcoming Employment Rights Bill, are putting immense pressure on businesses. Additionally, consumer spending on discretionary items like dining out is expected to remain constrained, with a large proportion of consumers intending to cut back on such expenses¹⁴.

Latest statistics from UK Hospitality show sector's confidence has drastically declined, reaching its lowest point since October 2022. This decline is largely attributed to anticipated cost increases in April, adding to the existing pressures of inflation and operational challenges carried over from previous years¹⁵.

Many companies will rely heavily on their promotions and loyalty programs to drive sales and bring people through the door, but the combined effect of increased costs and cautious consumer spending on dining out is expected to lead to a rise in insolvencies, particularly among businesses who are already experiencing difficulties.

UK Company Insolvency Figures – By Industry⁴