The Squeeze on British Businesses Is Not Letting Up Soon

LONDON — Britain’s economy faces a bracing fact: The number of companies that folded last year was the highest in three decades.

More than 25,000 companies registered as insolvent in 2023, the most since 1993, according to government data published this week. As pandemic-related support measures for businesses ended, the wreckage from years of high debt and interest rates, soaring prices and a cost-of-living crisis becomes clearer. Insolvencies have spread from small to larger businesses, analysts said.

Businesses still dealing with relatively high costs, demands for higher wages, supply chain uncertainties and wavering consumer confidence are hoping for brighter economic times. Slower inflation, stronger growth and cuts to interest rates are expected to come this year, but not soon.

On Thursday, the Bank of England held interest rates at 5.25%, the highest since 2008, and where they have remained since August, after rising from just above zero in a series of increases over a year and a half.

Policymakers said inflation had declined, including wage growth and services inflation, but some measures of persistence remained “elevated.”

There has been good news on inflation, “but we have to be more confident that inflation will fall all the way back to the 2% target and stay there,” Andrew Bailey, the governor of the bank, said Thursday. “We are not yet at a point where we can lower interest rates.”

Inflation in Britain has dropped notably from its peak above 11% in late 2022 to 4% in December. Some economists expect inflation to slow to 2% in the spring.

The bank said it expected inflation to fall below its target in the second quarter before rising again in the later half of the year. The inflation rate would end the year around 2.7% and stay there through 2025, not falling to target again until the following year.

The bank forecast the economy would continue the stagnation of the second and third quarters of 2023, into the end of the year. The economy would grow only 0.25% in 2024, before accelerating a little in 2025.

High interest rates are still working their way through the economy. About 30% of the effect of past interest rate increases has not yet passed through to businesses and households, the central bank estimated.

This article originally appeared in The New York Times.