500,000 businesses in ‘significant’ financial distress

Almost half a million businesses are now in significant financial distress, a 40% increase in the three years since the EU referendum, according to Begbies Traynor, which warns that Brexit stagnation and macroeconomic factors are creating a ‘perfect storm’

The firm says there are 489,000 UK businesses in significant financial distress, up by 139,000 since the 2016 vote. Over the past year the number of businesses with this rating has increased in 20 out of the 22 sectors its research monitors, suggesting this deteriorating financial performance is affecting a broad spectrum of companies.

Meanwhile, businesses in ‘critical’ financial distress have  increased 8% year-on-year.

The real estate and property sector, often considered a bellwether of the UK economy, has been particularly badly affected with a 16% increase in the number of businesses in significant financial distress from Q3 2018, the highest year-on-year percentage increase across any sectors measured in the research. This deterioration has been even more marked since the EU referendum with a 78% increase in significant distress.

Specifically, the report found property investors experienced a 35% increase in significant distress compared to the same period last year as falling residential and commercial property prices combined with reduced consumer and business confidence impacted the sector. The drop in demand has also resulted in significant financial distress levels for businesses involved in the construction of domestic buildings’, up by 8%.

Falling investment in the sector has sparked an 11% rise in companies involved in the development of building projects suffering from significant financial distress when compared to Q3 2018.

Elsewhere, Begbies Traynor says the tough trading conditions for high street retailers has now spread to the e-commerce retail sector. Online retailers have experienced a 10% increase in significant distress since Q3 2018. The overall increase in retailers in financial distress since Britain voted to leave the EU has been considerable with more than 31,000 retailers now in significant distress, up by 28% since Q32016.

Other sectors also reliant on consumer spending have been hit by reduced consumer confidence, including sport and health clubs which experienced a rise of 8% in significant financial distress, and leisure and cultural activities by 4%.

Julie Palmer, Begbies Traynor partner, said: ‘Much investment is on hold as businesses have their hands tied by not knowing what the state of play will be post-Brexit and whether the agreements or contracts they currently have in place will still be valid following the expected withdrawal, which is contributing to stifled growth nationwide.’

Ric Traynor, executive chairman of Begbies Traynor Group plc, added: ‘The broader macro economic environment is a real concern and could ultimately have a much greater impact on UK business than the specific terms of any Brexit deal.

‘The growth in protectionist trade policies, combined with faltering consumer demand in both the US and Europe are a real concern. Add to this the concerns surrounding China’s debt, which now stands at three times its GDP and we could be in for the perfect economic storm.’ 

By Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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