26 April
2024
Over half a million UK
businesses fighting for survival as UK economy
stagnates
·
The level of 'significant' financial distress
leapt 30.8% year-on-year in Q1 2024 with 554,554 companies affected
(Q1 2023: 424,041).
·
Each of the 22 sectors covered by Red Flag Alert
research experienced a double-digit growth in financial distress
over the last year.
·
The Construction, Food & Drug Retailers and
General Retailer sectors in particular drove the increase in
'significant' financial distress, up 38.6%, 40.8% and 38.7%
respectively in Q1 2024.
·
40,174 UK businesses are in 'critical' financial
distress - a 20.1% increase compared to Q1 2023 (33,449) making
them especially vulnerable to failure over the next 12
months.
The latest Begbies Traynor "Red Flag Alert" research,
which has provided a snapshot of British corporate health for over
15 years, highlights the speed at which financial distress has
accelerated over the last 12 months, with 554,554 UK businesses now
in 'significant' financial distress - a 30.8% rise compared to Q1
2023. This deterioration now affects all 22 sectors covered by this
latest research.
Additionally, the much more serious 'critical'
financial distress has leapt 20.1% compared to Q1 2023, with 40,174
UK businesses affected. Despite a 15.4% fall in critical financial
distress compared to Q4 2023 company insolvencies remain at
historically elevated levels as servicing debt at higher interest
rates takes its toll.
With many companies in 'critical' financial distress
expected to enter insolvency over the course of the next 12 months,
the picture in the Construction, Real Estate, Financial Services
and Support Services sectors is particularly concerning as nearly
50% (c.20,000 businesses) of the companies in 'critical' financial
distress are represented by these sectors.
Additionally, Red Flag Alert's historic data
indicates that a large percentage of the businesses currently in
'significant' financial distress are likely to progress towards
'critical' financial distress and potential insolvency if the
economic backdrop does not improve.
Julie Palmer,
Partner at Begbies Traynor, 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."
Ric Traynor,
Executive Chairman of Begbies Traynor, commented:
"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."
Top
10 Sector Ranking - Critical
Financial Distress
|
Top
10 Sector Ranking - Significant Financial
Distress
|
1.
|
Construction
|
6,141
|
|
1.
|
Support Services
|
84,066
|
2.
|
Support Services
|
5,795
|
|
2.
|
Construction
|
83,559
|
3.
|
Real Estate & Property
Services
|
5,396
|
|
3.
|
Real Estate & Property
Services
|
61,344
|
4.
|
General Retailers
|
3,027
|
|
4.
|
Professional Services
|
48,680
|
5.
|
Professional Services
|
2,693
|
|
5.
|
General Retailers
|
38,542
|
6.
|
Telecommunications & Information
Technology
|
2,295
|
|
6.
|
Telecommunications & Information
Technology
|
36,702
|
7.
|
Health & Education
|
2,247
|
|
7.
|
Health & Education
|
35,542
|
8.
|
Food & Drug Retailers
|
1,662
|
|
8.
|
Media
|
22,479
|
9.
|
Media
|
1,497
|
|
9.
|
Financial Services
|
15,995
|
10.
|
Bars & Restaurants
|
1,479
|
|
10.
|
Food & Drug Retailers
|
15,646
|
Critical Distress by Region
|
|
Significant Distress by Region
|
|
1.
|
London
|
12,089
|
|
1.
|
London
|
157,156
|
2.
|
South East
|
6,406
|
|
2.
|
South East
|
95,018
|
3.
|
Midlands
|
4,822
|
|
3.
|
Midlands
|
68,327
|
4.
|
North West
|
4,526
|
|
4.
|
North West
|
58,599
|
5.
|
Yorkshire
|
2,777
|
|
5.
|
South West
|
39,259
|
6.
|
East of England
|
2,415
|
|
6.
|
Yorkshire
|
37,952
|
7.
|
South West
|
2,385
|
|
7.
|
East of England
|
35,587
|
8.
|
Scotland
|
2,065
|
|
8.
|
Scotland
|
27,936
|
9.
|
Wales
|
1,187
|
|
9.
|
Wales
|
15,408
|
10.
|
North East
|
776
|
|
10.
|
North East
|
10,258
|
11.
|
Northern Ireland
|
718
|
|
11.
|
Northern Ireland
|
8,991
|
12.
|
Misc
|
8
|
|
12.
|
Misc
|
63
|
|
|
|
|
|
|
|
|
--ENDS--
For
further information, contact:
Notes to
Editors
About Red Flag Alert
Red Flag Alert has been measuring
and reporting corporate financial distress since 2004. It has
become a benchmark on the underlying health of companies across
every sector and region of the UK.
Red Flag Alert's algorithm measures
corporate distress signals, drawing on company accounts and
factual, legal and financial data from a wide range of relevant
sources, including intelligence from the UK's leading insolvency
business, Begbies Traynor. The algorithm was refreshed in H1 2023
to enhance the risk factors analysed in the data. The reported
results have been backdated to ensure the consistency of
comparative data.
Algorithms which drive Red Flag
Alert have been improved and updated for the latest report, with
companies now measured against a new scorecard of indicators to
give greater insight and accuracy into the health of businesses.
Two years of work by data scientists analysing eight years of data,
taking into consideration pre, during and post-pandemic insights to
find signals and patterns indicating businesses in distress,
combined with AI tools, means that Red Flag Alert aims soon to be
able to predict how many companies in trouble will go on to
fail.
The release refers to the number of
companies experiencing "Significant" or "Critical" problems, which
are those that have been identified by Red Flag Alert's proprietary
credit risk scoring system which screens companies for a sustained
or marked deterioration in key financial ratios and indicators
including those measuring working capital, contingent liabilities,
retained profits and net worth.
Red Flag Alert is commercially
available to all businesses, on an annual subscription basis, to
help them better understand risk and exposure and help subscribers
to plan for the future. Further information about Red Flag Alert
can be found at:
www.redflagalert.com
Economically active businesses
exclude those that are flagged by Companies House as being,
Non-trading, Listed for Strike off / Strike off pending, Insolvent
or Dissolved. Companies where there is insufficient information
available for RFA to assign a health rating are also
excluded.
About Begbies
Traynor Group plc
Begbies Traynor Group plc is a leading professional
services consultancy, providing services from a comprehensive
network of UK and off-shore locations. Our professional team
include licensed insolvency practitioners, accountants, chartered
surveyors, bankers and lawyers. We provide the following services
to our client base of corporates, financial institutions, the
investment community and the professional community:
·
· Insolvency
o Corporate and
personal insolvency
· Financial advisory
o Business and financial
restructuring; debt advisory; forensic accounting and investigations
· Transactional
support
o Corporate finance;
business sales agency; property agency; auctions
· Funding
o Commercial finance
broking; residential mortgage broking
· Valuations
o Commercial property,
business and asset valuations
· Projects and
development support
o Building consultancy;
transport planning
· Asset management and
insurance
o Commercial
property management; insurance broking; vacant
property risk management
Further information can be accessed via the group's website at
www.ir.begbies-traynorgroup.com