- Over 47,000 UK firms were in ‘critical’ financial distress during the last quarter
- The volume of companies in ‘significant’ financial distress has risen to 539,900
- Increasing inflation and interest rates are driving many businesses to the brink
The number of companies ‘on the edge of collapse’ has continued to soar, with every sector of the economy suffering from high debt costs and weaker consumer confidence.
Over 47,000 UK firms were in ‘critical’ financial distress during the final quarter of 2023, compared to 37,772 during the previous three months, according to Begbies Traynor.
It marks the second successive quarter where the volume of businesses nearing failure has jumped by around 25 per cent.
Every single industry covered by the restructuring specialist’s Red Flag Alert report saw an upsurge in firms experiencing critical financial distress in the last quarter, with 18 of the 22 sectors witnessing double-digit growth.
The construction, real estate and property, and support services industries were particularly badly affected, as was the health and education sector, which observed a 41.3 per cent rise.
Begbies also revealed that the volume of companies in ‘significant’ financial distress has climbed to 539,900, a 13 per cent gain on the previous quarter.
Julie Palmer, a Begbies partner, said a ‘perfect storm’ of inflation, high interest rates, low consumer confidence and growing input costs was ‘impacting every corner of the economy’.
The Bank of England hiked the UK base rate on 14 consecutive occasions between December 2021 and summer 2023 to dampen spiralling inflation.
This has pushed up costs for companies that took advantage of record-low interest rates during the height of the pandemic to accelerate their expansion plans or stay afloat.
Palmer said: ‘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.
‘For some, a better-than-expected Christmas may kick these concerns down the road for a little longer, but the rapid growth in the levels of critical financial distress point to an economy that is waking up to the danger of debt ladened businesses in a higher rates environment.’
The City expects the BoE to begin base rate cuts this year, with consumer price inflation falling back its four-decade high of 11.1 per cent in October 2022.
This is despite inflation unexpectedly increasing to 4 per cent last month following a leap in tobacco and alcohol prices.
However, Rick Traynor, executive chairman of Begbies Traynor, warned that a decline in interest rates would not be enough to save many companies.
He said: ‘There are no signs of an easy fix and, with geopolitical 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.
‘For many businesses, I fear soldiering on in this environment will prove to be one step too far, and I expect thousands of debt-laden businesses to start to fail this year.’
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