25% jump in firms facing ‘critical’ financial distress, with property and construction sectors featuring heavily, says Begbies Traynor
More than 47,000 UK companies are on the brink of collapse after a 25% jump in the number of businesses facing “critical” financial distress in the final three months of 2023, according to a report.
It marks the second consecutive quarter-on-quarter period when critical financial distress has risen by a 25%, the latest “Red Flag” report by insolvency specialists Begbies Traynor found.
The construction and property sectors accounted for 30% of all businesses facing critical financial distress.
The quarterly rate of increase in the number of companies facing critical financial distress grew by 32.6% in the construction industry, by 41.3% in health and education, a quarter in real estate and property services and 24% in support services.
Eighteen of the 22 sectors covered by the report recorded double-digit percentage growth in the number of firms whose finances have reached critical condition.
Julie Palmer, a partner at Begbies Traynor, said the tough macroeconomic conditions had created a “perfect storm” for UK businesses.
“After a difficult year for British businesses that was characterised by high interest rates, rampant inflation, weak consumer confidence and rising and unpredictable input costs, we are now seeing this perfect storm impact every corner of the economy,” she said.
The Bank of England raised interest rates from 0.1% at the end of 2021 to 5.25% to try to tame inflation. That has significantly increased the cost of borrowing for UK businesses, preventing many from papering over the cracks with cheap debt.
“Hundreds of thousands of businesses in the UK, who loaded up on affordable debt during those halcyon days, are now coming to terms with the added burden this will have on their finances,” Palmer added. “Sadly, for tens of thousands of British businesses who should be looking ahead with some degree of optimism, the new year will bring a fight for survival.”
The report found that 539,900 UK firms were facing “significant” financial stress by the end of last year, up by 12.9% on the third quarter of 2023.
Read more at: theguardian.com