Over 600,000 UK firms face financial strain amidst challenging economic climate

The latest Begbies Traynor “Red Flag Alert” research, which has provided a snapshot of British corporate health for almost two decades, reveals a particularly worrying picture as the number of UK companies in ‘significant’ financial distress jumped by nearly 10 per cent in Q2 2024 to 601,950 businesses (Q1 2024: 554,554).

During Q2 2024, ‘critical’ financial distress increased by 1.1 per cent to 40,613 companies in the UK. This followed noticeable increases in the Automotive (+13.2 per cent), Industrial Transportation & Logistics (+12.2 per cent), Health & Education (+8.4 per cent) and Bars & Restaurants (+7.3 per cent) sectors.

With a large number of the businesses in ‘critical’ financial distress expected to enter insolvency over the next 12 months, the state of the Construction, Real Estate, Hospitality, Financial & Support Services sectors continue to be of concern as companies from these sectors account for nearly 50 per cent of the businesses in ‘critical’ financial distress.

Julie Palmer, Partner at Begbies Traynor, said: “It looks like 2024 will prove to be another tough year for UK businesses. Six months in, and we’re seeing clear signs that financial distress is growing across almost every sector.

“This, combined with one of the wettest summers on record, continues to significantly impact trading. Additionally, the situation for the consumer remains very precarious. The latest figures from the Bank of England highlights how more than three million households will come off their fixed rate mortgages over the next two years – resulting in substantially higher repayments for many – which will in turn act as a drag on disposable incomes.

“In a climate like this one, many businesses who were supported through the pandemic and its aftershocks by the Government, will be hugely concerned by the very real prospect of a prolonged period of higher interest rates.

“Many businesses who loaded up on cheap debt prior to the pandemic are simply not equipped to survive the current pressures and the financial burdens they face may ultimately prove too much.

“Indeed, HMRC, which has been fairly lenient on companies repaying pandemic funding to date, will eventually tighten its grip and I expect this to push a considerable number of companies into insolvency over the next 12 months.”