Businesses in “significant” financial distress rises by 30%

Overall, this totals well over half a million businesses with the deterioration now affecting all 22 sectors covered by this latest research. Additionally, the more serious “critical” financial distress impacting companies rose by 20.1% when compared to the first quarter of 2023, with 40,174 firms affected.  

And, despite a 15.4% fall in critical financial distress when compared to the final quarter of last year, company insolvencies remain at historically elevated levels as servicing debt at high interest rates takes its toll.  

Meanwhile, of those expected to enter critical financial distress in the coming year, the picture is particularly concerning in the construction and real estate, as well as financial and support services sectors, with these making up nearly 50% of all companies facing critical financial distress.  

Alongside this, a large percentage of those currently in “significant” financial distress are expected to progress toward “critical” financial distress, and potential insolvency, if the economic backdrop does not improve. 

Begbies Traynor partner Julie Palmer said: “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 2023. 

“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. 

“As with the prior quarter, the picture is particularly concerning in the consumer facing sectors. 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. 

“Right now, many companies will be pinning their hopes on a meaningful cut to interest rates later this year, but 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.” 

Begbies Traynor executive chairman Ric Traynor added: “We are three months into 2024 and the considerable economic challenges facing many companies up and down the UK show no immediate sign of abating.  

“The macroeconomic conditions that made last year so difficult have continued to exert unrelenting pressure on corporate balance sheets. Consequently, our own red flag data shows a marked increase in British firms moving towards insolvency compared to the same period last year. 

“Growing geopolitical instability is compounding this problem and impairing the UK economy’s ability to pick up some much-needed momentum post-pandemic.  

“The UK economy is in a precarious enough position as it is, and further instability could cause fuel prices to rise markedly, increasing inflation and slowing the appetite for the predicted cuts to interest rates. 

“Unfortunately, there’s no quick fix for our economy and with inflation falling slower than expected, hope of the Bank of England cutting interest rates significantly in the near future seems to be fading. 

“Sadly, the pressing issues facing businesses today will simply push many over the edge and contribute to the current high level of UK corporate insolvencies.”