The number of UK businesses in financial distress has increased as legacy Covid debt, rampant inflation and tumbling consumer confidence puts companies closer to collapse, according to a report from Manchester-based business recovery firm Begbies Traynor Group plc.

Begbies Traynor said firms in the UK are under “intense strain.”

The consultancy said 610,405 business in the UK are in “significant financial distress,” up 4% from a year earlier.

The number of firms under significant financial distress was 24% higher than in the fourth quarter of 2019, prior to the onset of the pandemic. There was an 11% rise in those firms in more dire “critical” distress.

County court judgements (CCJs) served in the final quarter of 2022 jumped 52% year-on-year and were up 77% from pre-virus levels. CCJs are deemed a “leading indicator of financial distress.”

Firms in “significant” financial distress are those with minor CCJs of less than £5,000 hanging over them, Begbies said. Those in “critical” distress have minor CCJs of more than £5,000 filed against them.

“Businesses are struggling at an increasing rate as a combination of legacy Covid debt, inflation and greater pressure on consumers who are reining in spending, increasing the levels of significant financial distress across UK companies,” Begbies explained.

Begbies Traynor partner Julie Palmer said the findings contrast with the optimism in business heading into to 2022.

“We came into 2022 hopeful that the pandemic was fully behind us and better times were ahead, only for Russia’s invasion of Ukraine to unsettle the global economy, leading to spiralling inflation and soaring energy bills and laying the foundations for what looks like a global recession,” said Palmer.

“In the UK, in particular, strikes are just piling on the pressure as staff struggle to get to work and customers stay away.

“Throw in a such a gloomy economic outlook, with inflation at 40-year highs and interest rates at levels not seen for 14 years, and you can see why more and more companies are starting to feel the burden of their debts, making directors question whether they can go on.”

Support services providers, firms in real estate, general retailers and bar and restaurant operators are among the firms in the most financial distress.

Also making the top-10 struggling sectors are construction, professional services, telecommunications, health & education, media, and manufacturing.

Reporter: Eric Cunha, Alliance News

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