16% of UK businesses in financial distress as economic uncertainty grows
Some 484,000 UK businesses are in significant financial distress, with the property sector particularly affected, giving rise to concerns that the UK could suffer a broader economic slowdown, an independent insolvency firm said.
Begbies Traynor's Red Flag Alert data for Q1 2019, which monitors the financial health of UK companies, found that 16 per cent of all UK businesses were experiencing ‘significant’ financial distress at the end of March 2019, while the number of businesses in critical distress during the same period – often a precursor to formal insolvency – rose by 17 per cent year-on-year.
The research revealed increasing levels of significant distress within the financial services sector, with 12,728 businesses affected, an increase of 5 per cent compared with Q1 2018.
According to Begbies Traynor, the sector has been particularly affected by the uncertainty surrounding Brexit with some activity stalling pending clarity on the final outcome. Once a final decision has been agreed, stability is expected to return as the fundamentals of this sector remain reasonably good.
"Many UK businesses are currently in limbo and deferring major investment decisions. This, combined with consumers holding back on big ticket purchases, has resulted in increasing significant distress across many sectors," Julie Palmer, partner at Begbies Traynor, said.
Worryingly, Ms Palmer said, the data shows that this economic malaise is spreading to the UK’s dominant services sector. She noted that it needs to be stopped by a combination of political certainty and a commitment to support UK business, particularly SMEs.
"We have heard from businesses that Brexit uncertainty has been a hindrance to business growth and investment. There has already been a number of high-profile firms announcing their decision to invest in other countries, which not only impacts regional economies, but also the SME supply chain," Ric Traynor, executive chairman of Begbies Traynor Group, commented.
However, he warned that the combination of faltering European economies and a potential trade war between the US and Europe could have a far wider impact on UK businesses than domestic issues.
"Yet, with employment currently a record high of 32.7 million and GDP still growing, the UK’s economic foundations remain strong. If the government is able to right the ship over the next few months, providing greater certainty to businesses and regaining consumer confidence, then there is still time to head to calmer waters and avoid a storm," Mr Traynor said.