A retail store
The retail sector emerged as the dominant force behind business administrations in the UK. Ed JONES/AFP

In a new discovery, the retail sector has emerged as the dominant force behind business administrations in the UK, comprising a substantial 16 per cent of all filings during the first half of 2023, according to an analysis conducted by the prominent full-service legal firm, Shakespeare Martineau.

Over the span of January 1 to June 30, a total of 759 businesses found themselves in administration, 118 of which hailed from the beleaguered retail sector. The rise in business failure marks a 22 per cent increase compared to 2022, emphasising the unsettling economic climate that continues to prevail.

While the current statistics haven't yet reached the pre-pandemic figures of the first half of 2019, during which 940 businesses underwent administration, experts in insolvency and restructuring are sounding the alarm. They cautioned that unless the escalating inflation is effectively managed and loan interest rates remain stable, a distressing wave of business collapses could ensue.

The retail business has surpassed construction as the worst-affected sector, with filings nearly doubling when juxtaposed with the first six months of 2022. Consequently, the ranks of the hardest-hit sectors have been swelled by retail, closely followed by construction, hospitality, real estate and manufacturing.

Andy Taylor, Partner and Head of Restructuring at Shakespeare Martineau cast light on the current predicament. He articulated that the predominant economic situation has predisposed businesses to pursue the path of administration, given the formidable challenges they face.

He said: "HMRC is definitely taking a harder line than in previous periods, and the threat of enforcement is definitely pushing some businesses to consider their options, with some seeking administration as an alternative to facing a winding-up petition."

As the crunch of inflation and higher interest rates bites deeper, the domino effect reverberates across industries. Taylor noted the discernible shift in consumer behaviour, with spending confined largely to essentials due to the erosion of purchasing power. This transformation has had a profound impact on the retail and hospitality sectors, leading to dwindling footfall in high streets and eateries alike.

Underpinning these struggles are the mounting pressures arising from escalating borrowing costs and energy expenditures. Businesses are also under strain due to increasing borrowing prices and energy costs, so they are squeezed from both sides.

The worst-affected industries were retail, manufacturing, construction, hospitality and real estate, which accounted for 57 per cent of all administrations. Greater London accounted for one-quarter of all filings, followed by the North West (15%) and the South East (11%), according to data from The Gazette Official Public Record.

The unforgiving reality becomes even more pronounced when considering the sectors most affected by these tribulations. The combined weight of retail, manufacturing, construction, hospitality and real estate has borne the brunt, accounting for a staggering 57 per cent of all administrations.

London's prominence as the hub of business administrations persists, with Greater London contributing a quarter of all filings. Surprisingly, the North West has ascended to second place, surpassing the South East, while the West Midlands has unseated the East of England in the top five.

"Our advice remains consistent," Taylor explained, "seeking professional advice early can open up more options for struggling businesses."

Taylor further urged business owners not to ignore warning signs but to confront underlying issues head-on. By doing so, they can chart a more resilient course in the turbulent trading environment, enhancing their prospects for survival in the face of adversity.