The number of British companies now in ‘critical’ financial distress rose by 1% to 40,613 in the last three months, according to Begbies Traynor Group plc, the Manchester-based business recovery and financial advisory firm, as consumer confidence remains low and the country enters a prolonged period of high interest rates.
The sectors worst affected are automotive, industrial transportation/logistics, health/education and bars/restaurants, the company said.
More than 600,000 UK companies are now in ‘significant’ financial distress, up nearly 10% from the previous quarter, with the most marked increases in travel/tourism, hotels/accommodation and bars/restaurants.
“It is a particularly difficult situation for businesses in consumer facing sectors, such as hospitality,” said Julie Palmer, Partner at Begbies Traynor. “While a fall in inflation to more palatable levels will likely provide some relief, consumers simply aren’t behaving like they used to and these businesses, who are still grappling with higher costs pushed up by higher wages, are really struggling. This, combined with one of the wettest summers on record, continues to significantly impact trading.”
Palmer added that a prolonged period of higher interest rates will hurt more consumers as their fixed rate mortgages end, and punish companies with high debt.
“In a climate like this one, many businesses who were supported through the pandemic and its aftershocks by the Government, will be hugely concerned by the very real prospect of a prolonged period of higher interest rates. Many businesses who loaded up on cheap debt prior to the pandemic are simply not equipped to survive the current pressures and the financial burdens they face may ultimately prove too much.”
Begbies Traynor publishes its ‘Red Flag Alert’ research every three months, compiled by an algorithm which picks up corporate distress signals from company accounts and other sources. The company says it is a “snapshot of British corporate health.”
Ric Traynor, Executive Chairman of Begbies Traynor, said: “We are a little over halfway through the year and the macro-economic environment for UK companies remains extremely testing. There might be a greater sense of optimism in certain corners of the economy, but this is yet to translate into anything meaningful for the hundreds of thousands of businesses fighting for survival.”
“The good news is that we now have some political certainty after the recent elections, which should result in some momentum starting to build this summer. A continuation of falling inflation levels will be especially helpful for businesses, particularly if interest rates begin to inch backwards later this year.”
Traynor said the new government may not be able to act fast enough to stop many struggling businesses from going under.
“In short, the prevailing economic situation means that we still expect to see heightened levels of company insolvencies extend into 2025 and beyond.”