Rise in businesses in “critical financial distress”

It found there was a 37% increase in this number between the second quarter of 2021 and the second quarter of 2022. 

The bars and restaurants, general retailers and construction sectors have been the major drivers behind this increase, with year-on-year rises of 70%, 48% and 36% respectively. 

This research comes just a day after the Bank of England confirmed its highest interest rate rise since 1995, pushing rates to 1.75%. In its predictions, the bank expects consumer price index inflation to go from 9.4% in June to just over 13% in the final quarter of 2022 - with it also projecting that the UK will enter a recession during this period of time. 

Driven by higher labour, material and energy prices, combined with faltering consumer business confidence, this - according to Begbies Traynor - means companies are now facing an exceptionally difficult economic backdrop. Adding to this, there’s further pressure on many firms to repay the government-backed Covid support loans. 

Evidence of this financial distress comes from County Court Judgement (CCJ) data, which revealed 46,235 rulings in the first six months of 2022, as creditors tried to recover debts. This compares with 59,042 CCJs during the entirety of 2021. 

Begbies Traynor partner Julie Palmer said the data painted a worrying picture. 

She explained: “Having emerged from the pandemic, many companies were hoping for an economic boom but that has simply fizzled out, as supply chain issues and the invasion of Ukraine have taken their toll by driving up raw material and energy costs and reducing both business and consumer confidence.

“We are now in a very high inflationary environment that’s piling pressure on businesses that were already weakened by the shock of the pandemic. Sectors most exposed to discretionary consumer spending - bars and restaurants and general retailers - are feeling the pain most. 

“Hit by staff shortages due to the latest spike in Covid rates, their customers are now reining in spending on anything that’s not necessary, ahead of the expected hike in the energy price cap, and we are seeing clear signs of this in this Red Flag data.”

“I am also particularly concerned for those SMEs who operate in energy-intensive sectors, such as manufacturing, as some could simply become unviable. Without the benefit of an energy price cap, business energy tariffs have at least trebled, and for many it will be much worse.”

One positive, however, to come from the research is that the number of businesses rated as being in “significant distress” was flat when compared to the previous quarter at 582,452 - and down 11% during the same three months in 2021.