Nearly 610,000 UK businesses in significant financial distress

The latest Red Flag Alert from Begbies Traynor has revealed a significant increase in the number of UK businesses in financial distress. According to the report, close to 610,000 UK firms were in significant financial distress during the third quarter of the year, an 8 per cent increase on Q3 2021 and up 4 per cent from Q2 2022.

The number of businesses classed as being in “critical financial distress”, meanwhile, increased 25 per cent year-on-year to 2,090, which was a seven per cent increase compared to Q2 2022. Overall, Begbies Traynor reported that significant financial distress has increased quarter-on-quarter across all 22 sectors covered in the report.

The rapid increase in significant financial distress has been led by the general retail sector (with a 72 per cent increase compared to Q2 2022) and bars and restaurants (up 48 per cent), after consumer confidence was hit by the cost-of-living crisis. Other sectors with notable increases included leisure and cultural activities (36 per cent) and media (48 per cent).

Over recent months, many UK businesses have been hit by issues including rising costs. With inflation currently at an official rate of 9 per cent, Begbies Traynor has warned that companies face the prospect of interest rates going above 5 per cent, which it says could lead to distressed businesses entering insolvency as their debt piles (with many having accrued huge debts during the COVID-19 pandemic) become unserviceable.

During the third quarter, 17,637 county court judgements (CCJs) were served against UK businesses, bringing the total for the year so far to 63,831, a figure that exceeds the entirety of 2020 or 2021 and the second highest for the first nine months of a year since 2010.

Winding-up Petitions, meanwhile, were up 237 per cent compared to the same period last year, with Begbies Traynor remarking that companies are increasingly resorting to aggressive legal enforcement measures as they seek to recoup debts.

Begbies Traynor partner Julie Palmer commented: “We are now in an environment that we have not seen for many years, with a dangerous mix of rapidly rising inflation, escalating interest rates and crumbling consumer confidence.”

“The economy, which had already been weakened by two years of pandemic disruption, now faces the very real possibility of a recession at a time when businesses were in desperate need of a sustained period of stability so they could get back on their feet.”

“What we have instead is a situation where input costs are soaring and businesses that borrowed to survive for years and are stuck with levels debt that they may be unable repay – especially with interest rates expected to rise to circa 6 per cent in 2023.”

Palmer added that, with consumer confidence falling, there was major concern for businesses in sectors most exposed to discretionary consumer spending, which had been among those worst affected by the COVID-19 pandemic.

Palmer concluded: “I fear that many directors who fought through Covid will soon conclude that getting through 2023 and 2024 is a bridge too far after the troublesome period they have just battled through.”

Begbies Traynor Executive Chairman Ric Traynor, meanwhile, said: “This latest data clearly shows that many UK businesses are struggling as the macroeconomic backdrop continues to deteriorate.”

“Unfortunately, things are only likely to get worse, especially while we have the conflict in Ukraine, an ever-strengthening dollar, and a lack of complete clarity on the UK’s fiscal plan. Inflation remains at levels not seen in 40 years and companies that have been burdened with high levels of debt are now seeing interest rates rise rapidly. For many, this will simply be too much.”

“With consumer confidence where it is, it feels like we are heading towards a bleak winter and 2023 and, after two years of extensive financial support for businesses, the Government has little left in reserve to help businesses to ride out this economic storm.”


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