Future Perspectives: An Outlook on the UK’s Restructuring Landscape

Economic factors always play a decisive role in business decision-making, but for 2025, this influence is even more pronounced as we find ourselves at a crossroads, emerging from years of turbulence shaped by a mix of lockdowns, wars, geopolitical instability, and large spikes in interest rates and inflation.

In the UK, there is a sense of cautious optimism among businesses, policymakers, and economists, but there are undeniable headwinds. The Bank of England’s recent interest rate cuts signal a step towards easing borrowing costs, while the government’s initiatives in sectors like AI reflect efforts to spur growth. However, businesses are still grappling with inflationary pressures, rising labour costs, and an uncertain political environment. This combination of factors creates a complex backdrop.

A Mixed Picture: The UK’s Economic Outlook for 2025

Recent administration results reported by Kroll reveal a rising trend. In 2024, there were 1,330 administrations, up from 1,259 (a 6% increase) in 2023. These numbers are higher than in years affected by the pandemic, when there were 995 (2022), 659 (2021), and 1,068 (2020).

The sector with the most administrations was manufacturing, with a 20% year-on-year increase. This was followed by last year’s highest-scoring sector, construction, which was marginally down. Historically, construction and manufacturing are typically more affected, as these industries often operate on thin margins and are also exposed to recent factors including higher energy costs, access to finance, skills and immigration challenges, as well as supply chain disruption.

The sectors with the biggest increases in 2024 were recruitment businesses, which saw a 53% increase, alongside media and technology companies, which increased by 50%. With greater uncertainty in the job market following years of high activity during the pandemic, 2024 saw many recruitment companies struggle. Within the media and tech sector, this uptick relates to numerous challenges, including declining advertising revenues across traditional media, a broader slowdown across the sector, with lenders and venture capital firms becoming more risk-averse towards start-ups, alongside regulatory changes.

Focus Areas: Key Trends Shaping Restructuring and Insolvency in 2025

• High borrowing costs and the refinancing wall: With interest rates higher than in previous years, businesses with heavy debt loads will face growing financial strain. A particularly pressing concern is the refinancing wall, as large amounts of corporate debts are due. Companies in sectors such as real estate, construction and manufacturing, where margins are already squeezed, may find it difficult to meet these obligations without significant restructuring. This could lead to more insolvencies, especially for businesses heavily reliant on debt financing. The key for these companies will be engaging with lenders early to explore refinancing options, as waiting until the last moment could lead to avoidable financial distress.
• Inflation’s long-lasting impact on profit margins: While inflation has been gradually easing, it remains a significant challenge for many businesses. Companies across industries are already feeling the strain as raw material prices remain elevated. For those in sectors like retail, hospitality and construction, the pressure to maintain profitability without alienating customers will be intense. In this environment, effective cost control, liquidity management and strategic restructuring will be paramount. Companies may need to explore renegotiating contracts, realigning supply chains or adjusting business models to absorb the impact of inflation while protecting their market positions.
• Political and economic instability affecting investment: The political landscape in the UK remains uncertain, especially with the recent general election delivering a significant shift in power. As the government grapples with ongoing economic challenges, businesses will need to consider the potential long-term implications for policy. For those in private equity and finance, the political climate could influence deal-making strategies, as the shifting tax environment and regulatory changes impact investment decisions. Additionally, businesses with international exposure may face heightened risks from fluctuating trade policies and geopolitical tensions.
• M&A activity driven by distress and consolidation: While M&A activity is expected to pick up in 2025, it is likely to be driven by consolidation and financial distress rather than aggressive expansion. The UK is seeing increased activity in sectors like financial services, where large banks and insurers are merging to fortify their positions. However, there is also a rise in distressed M&A deals, where businesses facing insolvency look for buyers or new financial structures. For restructuring professionals, this offers both challenges and opportunities to guide companies through complex negotiations, often when they are most vulnerable.
• Sector-specific struggles and the need for tailored solutions: Certain sectors will be more vulnerable to insolvencies in 2025, with those heavily reliant on high capital expenditure or low margins particularly at risk. The construction and manufacturing industries, in particular, will need to navigate rising costs and decreasing profitability. However, the professional services sector is not immune either, as law firms and advisory firms may face financial distress due to changing market conditions and shifting client needs. Restructuring professionals will need to offer bespoke solutions, ensuring the response is tailored to the unique challenges and opportunities of each business.

Looking Ahead: Opportunities for Stressed Companies

The restructuring sector will be crucial in 2025, helping businesses navigate the year ahead. The landscape is fraught with challenges but also offers opportunities for those who can adapt. Stressed companies must rely on experienced advisers to explore innovative solutions, whether through debt restructuring, asset disposals or M&A strategies. The key is to stay proactive, engage with stakeholders early and remain nimble in the face of economic uncertainty. With the right guidance, 2025 could see restructuring becoming the catalyst for renewed growth.