When feeling a little lost, stressed or fearful about life its fairly natural to gravitate towards things that give us a sense of ease (dopamine), control, distraction and worth. I used to find these escapes in alcohol, and then food, and from time to time I still do in shopping to the detriment of my mental health. 

But all things in moderation as they say, and I would argue there is actually meaning in some material things that give us a sense of remembrance or comfort. Hard work should be rewarded and this is often a nice way to do so. 

They call it retail therapy for ironic reasons. It provides a psychological change, not of the natural variety though, to our troubles. But there is an important link between this inalienable truth and what is happening to the economy and companies performance at the moment. 

In spite of recent interest rate rises, inflationary pressures, and just about everything else that could go wrong in the world - there were contradictory articles published in the Times last week both highlighting the ongoing demand for luxury holidays (spending on the up), and Hotel Chocolat posting warning of narrow profits for the year (spending on the down).

Human behaviour, or spending habits, and companies' success are inextricably linked. There is a lot of talk of the doom and gloom ahead for directors and companies as well as Joe Bloggs who is unable to keep up with the mortgage payments – or as The Morning Accountant reported, being unable to pay for the basics as a result of late filing penalties for personal tax returns that HMRC are currently issuing.

But spending habits haven’t changed dramatically and consumer spending is still strong. Murmurs of a second wave of retail failures don’t seem to have come to fruition, and as stated above the Times reported this week that luxury holiday are selling out, fashion seems to be relatively unaffected (although Burberry have posted some profit warning in recent days), and electric car sales are on the increase, to name a few examples.

This means that there will be some big winners and also some losers in the next 12 months. But is it going to be as bad as everyone thinks?

In the case of Hotel Chocolat there were a few key factors outside of consumer spending that have hit them:

- Cost base inefficiencies: Hotel Chocolat has said that it is still working to improve its cost base (labour costs). This is taking longer than expected, and it is impacting the company's profitability; and

- One-off costs: Hotel Chocolat has incurred a number of one-off costs in recent months, such as the closure of its US stores. These costs are also impacting the company's profitability.

They also reference weakness in consumer attitude and increase in the price of cocoa, but the point here is that where it involves consumerism, people’s behaviour will continue to drive companies' success, and people want to escape, which is why spending will continue for now.

The Times cites the luxury holiday market as seeing more and more activity, this is a great example of human behaviour driving consumerism, but there are some other factors to consider as to why there is this increase in demand:

- Baby boomers retiring that have more disposable income. They are less likely to be squeezed by rising prices for essentials;

- The old fashioned approach of saving up for a luxury holiday each year; and

- Increased income as a result of inflated labour salaries in particular industries.

So consumerism is only one aspect of the considerations, and there is no doubt that spending will start to slow as a result of interest rate rises, but whether that is to a level that impacts company failures remains to be seen.

According to a recent report by the insolvency body R3, there has been a fourfold increase in the number of companies currently at risk of closure and/or insolvency. This is due in part to the recent rise in interest rates which has made it more difficult for businesses to borrow money.

The report also found that nearly 80,000 businesses would struggle to deal with an increase of 0.25% (we now know the increase was 0.50%). It is also thought that 79,000 businesses would not be able to repay their debts if the interest rate was to rise. That a lot of directors struggling for air.

Of course, the impact of interest rate rises on insolvency will vary depending on a number of factors, such as the sector in which a business operates and the financial health of the business before the interest rate rises. However, it is clear that rising interest rates are likely to lead to an increase in insolvencies. Not lease because of higher borrowing costs, reduced demand and increased competition.

So what does all this mean in reality? It means that there will be failures, that directors will continue to see challenges, but the extent of these challenges and failures will, in part, be driven by simple human behaviour. 

It also means that predicting, and understanding the direction of travel for professionals such as ourselves as restructuring experts, is not easy. People will act on impulse, on emotion and on reward systems. So there is every possibility some companies will continue to thrive as a result. There is also every possibility some companies will fail, equally as a result of directors acting in this way, to the detriment of their business. 

Our business model is run on people and the connections we make. We have a wealth of experience and expertise for companies who are struggling and need to find a way through, or conversely for companies who are booming and investors want an exit. But what is interesting here as with what we are seeing in the economy at the moment, is the power of understanding human behaviour, over analysis and numbers.