UK businesses in ‘significant’ financial distress rise by third in Q3

The amount of UK businesses in “significant” financial distress has risen by a third against the prior year, according to Begbies Traynor’s latest Red Flag Alert for Q3 2024.The report found that 632,756 UK businesses are now in significant financial distress, up by 5.1% on the prior quarter (601,950) and by 32.3% against Q3 2023 (478,176).

Those in significant financial distress increased in 21 of the 22 sectors covered by the report when compared to the previous quarter. It rose “particularly rapidly” in Utilities (+19.3%), Food & Drug Retailers (+10.4%), Financial Services (+9.94%) and Bars and Restaurants (+8.7%).

Despite this, the number of businesses in “critical” financial distress fell quarter on quarter by 23.2% to 31,201 in Q3, down from 40,613 in Q2. This was also 17.3% lower than Q3 2023 (37,772).

This quarterly reduction was seen in the Hotels and Accommodation (-33.5%), Construction (-28.5%) and Real Estate & Property Services sectors (-26.5%).

The sectors experiencing the highest numbers of companies in critical financial distress were Support Services (4,860), Construction (4,324) and Real Estate and Property Services (4,099).

Julie Palmer, partner at Begbies Traynor, said: “With the end of the year now in sight, many British companies must be looking ahead to the finish line with a cautious degree of optimism for what 2025 has to offer after a difficult year. So far, there is no hiding from the fact that 2024 has been hard to navigate for companies and the final quarter looks no different as a high degree of uncertainty weighs on the UK economy.

 “With over 630,000 firms now in significant financial distress, more than thirty per cent higher than this time last year, no section of the country’s economy is immune from the legacy debt built up by many businesses during the pandemic.”

 She added: “It is also apparent that the toxic effect of high inflation is still filtering down to businesses. The construction sector in particular continues to struggle with the legacy of high materials and labour inflation which have led to some high-profile insolvencies recently. This is a trend that I expect to continue, and I do not believe ISG will be the only major casualty in this sector with the domino effect likely to hit the sub-contractor community in due course.

 “For some, the prospect of a change of government was viewed as a potential catalyst for a much-needed economic boost, but there are significant concerns surrounding what the next Budget might hold for the economy and the knock-on effect could be damaging for many businesses teetering on the edge of collapse, as it seems certain many will have to deal with higher employee related taxes.”