The number of businesses in ‘significant’ financial distress rose by 15,000 in the last quarter of 2018 and now stands at 481,000, while the proportion whose distress level is ‘critical’ was 25% higher than the same quarter of the previous year, according to data from Begbies Traynor
The firm’s Red Flag Alert research found 2,183 companies in ‘critical’ financial distress in Q4 2018.
The hardest hit sector was real estate and property, which saw a 7% (3,134) increase in the number of companies in significant distress from Q3 2018 to Q4 2018, accompanies by a 9% year on year increase, equating to 4,013 extra businesses.
The research data also shows that thousands more companies in support services (4,245, a 4% increase), construction (2,599, a 4% increase) and professional services (1,027, a 4% increase) were plunged into significant financial distress during Q4 2018.
Despite some well-publicised high street failures, the figures show that retail was not as badly affected as expected, with only a 2% increase in the number of companies in significant financial distress between Q3 and Q4 2018. This equated to an additional 529 businesses.
However, Begbies Traynor points out that Q4 is typically a strong cash trading period for most retailers, with any underlying problems in this sector likely to appear during Q1 2019.
Julie Palmer, partner at Begbies Traynor, said: ‘After a period of relative stability, these figures for Q4 show that UK businesses have experienced a winter of discontent.
Customers for traditional shop-front retailers are going online and the ongoing uncertainty surrounding Brexit is having an effect on investment in sectors such as property and construction.
It seems, for the last quarter at least, that big business is holding out for a decision on the terms of Brexit in order to see where investment is best placed, which is having a knock-on effect on consumer confidence.
‘While the number of retailers in significant distress only increased slowly year on year since Q4 2017, we expect that this is due to heavy discounting giving retailers more cash and delaying their entry into danger. The industry should be braced for a tough start to 2019.’
Report by Pat Sweet