Inflation, Consumer Pessimism Push U.K. Firms to Close Their Doors

Governments have tried to support companies by capping energy bills in some places. Germany and France have nationalized two big utilities caught out by soaring prices.

In the U.K., a wave of business closures is now washing over the country amid the economic pressure. Trapped between surging costs on the one hand and weakening customer demand on the other, cafes and bakeries, breweries and bookstores, pubs and fish and chip shops have been closing their doors.

Over a quarter of a million U.K. companies stopped trading in the first half of this year—16% more than in the first half of 2021 and 40% more than in the first six months of prepandemic 2019, according to the Office of National Statistics. It was the largest number ever recorded in a six-month period, according to the ONS.

Data on business closures in the July to September quarter aren’t released until later this month, but many analysts expect the failure rate to have accelerated.

Most of those closures are small businesses. The ONS numbers don’t break down the size of companies closing. But 95% of the U.K.’s 5.6 million companies in 2021 had nine employees or fewer, according to the U.K. Department for Business, Energy and Industrial Strategy.

Numbers are difficult to compare across borders, but bankruptcies—a subset of business closures generally—haven’t increased notably in much of the rest of the continent, according to data for the eurozone. In France, which has reported numbers similar to those in the U.K., 183,530 businesses closed in the first six months of the year, up roughly a third compared with the first half of 2021, according to data from French commercial courts.

U.K. businesses recently have been put under fresh strain closer to home. A surprisingly large tax-cutting package announced by the U.K. government late last month roiled markets, further clouding the outlook for executives and business owners.

British consumers have stopped buying many nonessentials, executives say. Anxious consumers are tending to delay big-ticket purchases, such as cars, furniture and expensive vacations.

Consumer confidence in the U.K. fell in September to the weakest level since data company GfK started tracking it in 1974. “Consumers are buckling under the pressure of the U.K.’s growing cost-of-living crisis,” said

Joe Staton,

the company’s client strategy director. Consumer confidence in the European Union is also at a record low, the European Commission said last week.

Businesses were hurting before the Russia-Ukraine war. The pandemic strained many enterprises, though government financial support was a lifeline for some. After Covid-19 restrictions were lifted, soaring demand and hobbled supply lines started to stoke prices. The war, however, has put that inflationary pressure into overdrive in the U.K.

“Trade is just too uncertain,” Glasgow-based bookshop Outwith Books said when announcing its closure last month. In Leeds, brewery Nomadic Beers said it was unable to continue because of the “increasing costs of everything from utilities to ingredients.” The Station Masters, a fish and chip shop in the northern English town of Bingley, said it was being forced to shut by rising food costs and energy bills.

Other companies are taking significant steps to hunker down. BrewDog PLC said last month that it was shutting six U.K. pubs due to rising costs. “If nothing happens, the U.K. looks set to lose half of its pubs and bars,” James Watt, the brewer’s chief executive, wrote in a LinkedIn post announcing the closures.

Those still operating face the prospect of even-weaker consumer demand, as the Bank of England raises interest rates to combat inflation. That threatens to cut into household finances by hiking mortgage repayments and credit card bills.

Having battled through the Covid-19 pandemic,

Eve Sleep

PLC Chief Executive

Cheryl Calverley

was planning on a strong recovery in 2022. The bedding company was forecasting sales of its mattresses to rise by a third from the previous year.

“Then Russia invaded Ukraine,” said Ms. Calverley, “and everything went off a cliff.” Costs, chiefly for components for products such as mattresses and bed frames, were already climbing last year. After the start of the war, energy costs rose, too.

Ms. Calverley said her customers have been facing the same soaring bills, so they have stopped spending money on other things. Instead of the forecast growth, Eve Sleep’s sales declined 16% in the first half of 2022.

The company cut staff in half, from 60 to 30. It discontinued all but the most profitable lines of beds. Cash has dwindled to 1 million pounds, equivalent to $1.1 million, at the end of August, down from £5.2 million at the end of June 2021. Ms. Calverley is seeking a buyer or investor.

Right now, she said, “the middle class has lost the confidence to spend.”

Write to Trefor Moss at [email protected]