Economy: ‘Situation critical’ warning after huge spike in on the brink businesses
The UK economy is facing a potentially significant wave of collapsed businesses, an accountancy firm has warned.
Nearly 50,000 UK businesses are in “critical” financial distress, according to a new data, as high borrowing costs and inflationary pressures continue to squeeze firms.
The latest Red Flag Alert from insolvency specialist Begbies Traynor found that, across the economy, the number of firms in a “critical” position was 47,477 in the fourth quarter, up 26 per cent from the previous quarter.
The third quarter was itself a 25 per cent rise from the previous period.
Begbies Traynor said a “significant percentage” of businesses it identifies as in “critical” financial distress will become insolvent in the next year.
The number of firms going bust last year reached its highest level since the financial crisis in 2009, according to government data, with insolvencies rising 10 per cent year-on-year in the third quarter.
Last week, markets were spooked by a double whammy of higher-than-expected inflation in December and poor retail figures that showed the UK is on the brink of a technical recession.
This number of businesses in “significant” financial distress also rose last quarter by 13 per cent, with more than half a million (539,900) affected as of the end of 2023.
Begbies Traynor said the key sectors driving the rise in financial distress continued to be construction, real estate and property, and support services, as well as health and education.
Of the 22 sectors covered in its report, 18 saw double-digit percentage growth in the number of firms in a “critical” position.
Julie Palmer, a partner at Begbies Traynor, argued that economic turmoil had created a “perfect storm” for British firms.
“Now that the era of cheap money is firmly a thing of the past, hundreds of thousands of businesses in the UK, who loaded up on affordable debt during those halcyon days, are now coming to terms with the added burden this will have on their finances,” she said.
“Sadly, for tens of thousands of British businesses who should be looking ahead to 2024 with some degree of optimism, the new year will bring a fight for survival as the debt storm that has been brewing for years looks like it is breaking across the country.”
Ric Traynor, executive chair of Begbies Traynor, added: “Later this year, we could see some respite for companies as inflation looks like it may reach more palatable levels which in turn should result in interest rates starting to climb down from current heightened levels.
“Unfortunately, there are no signs of an easy fix and, with geo-political uncertainty continuing to rise and a hike in the national wage around the corner, the backdrop is hardly improving for an economy that is still firmly in recovery mode post-pandemic.”