Over half a million UK businesses fighting for survival as UK economy stagnates
Over half a million UK businesses fighting for survival as UK economy stagnates
The Construction, Food & Drug Retailers and General Retailer sectors in particular drove the increase in ‘significant’ financial distress, up 38.6%, 40.8% and 38.7% respectively in Q1 2024.
The level of UK businesses under ‘significant’ financial distress has jumped by 30.8% to 554,554 in the past year, according to new research from accounting firm Begbies Traynor.
The firm’s latest ‘Red Flag Research’, which has provided a snapshot of British corporate health for over 15 years, notes this deterioration now affects all 22 sectors covered by this latest research.
Additionally, the much more serious ‘critical’ financial distress has leapt 20.1% compared to Q1 2023, with 40,174 UK businesses affected.
Despite a 15.4% fall in critical financial distress compared to Q4 2023 company insolvencies remain at historically elevated levels as servicing debt at higher interest rates takes its toll.
“Despite some optimism as we entered the new year, 2024 has so far been characterised by a continuation of the same pressures that plagued companies in the UK throughout 2022, explains Julie Palmer, Partner at Begbies Traynor.
“Since the pandemic, hundreds of thousands of UK businesses depleted their financial reserves and loaded their balance sheets with increasingly unaffordable debt which for many may simply be too great to bear.
With many companies in ‘critical’ financial distress expected to enter insolvency over the course of the next 12 months, the picture in the Construction, Real Estate, Financial Services and Support Services sectors is particularly concerning as nearly 50% (c.20,000 businesses) of the companies in ‘critical’ financial distress are represented by these sectors.
“As with the prior quarter, the picture is particularly concerning in the consumer facing sectors,” says Palmer.
“We are starting to see this translate into larger companies entering insolvency, a trend that I expect to continue while consumer confidence remains uncertain. On top of that, the higher levels of financial distress in bellwether sectors such as real estate and construction point to a troubled UK economy.”
Palmer went on to note that many companies will be “pinning their hopes” on a “meaningful” cut to interest rates later this year. However, the Bank of England continues to be hawkish, so it is unlikely to make a cut in the near-term given inflation is still higher than expected.
“All of this means that these pressures are here to stay, and I fear this will result in thousands of businesses failing in the coming months as the constant pressures will become too great for many,” she says.
Additionally, Red Flag Alert’s historic data indicates that a large percentage of the businesses currently in ‘significant’ financial distress are likely to progress towards ‘critical’ financial distress and potential insolvency if the economic backdrop does not improve.
This article is sourced from the following link:
