The number of businesses in significant financial distress has risen to 494,000, with the real estate and property, support services, construction and retail the sectors particularly badly affected, according to research by insolvency firm Begbies Traynor.
Its latest Red Flag Alert data for Q4 2019 found there were large numbers of UK businesses experiencing significant financial distress at the end of December 2019. A considerable number of these companies were formed after 2014, demonstrating that younger businesses are the most vulnerable to failure. With this continued increase in significant distress there is a danger that in 2020, this distress figure could exceed 500,000 companies.
Across the 22 sectors monitored by the Red Flag Alert research, 15 sectors have witnessed increases in significant financial between the third and fourth quarter of 2019, compared to 13 out of the 22 sectors between Q4 2018 and Q4 2019, indicating that the latter quarter of 2019 has witnessed the broadest rise in financial distress.
Julie Palmer, partner at Begbies Traynor, said: “Businesses and the UK economy as a whole will want to avoid a repeat performance of 2019, where distress increased to record levels on the back of ongoing uncertainty around Brexit. These figures clearly demonstrate the impact of this indecision, and with political certainty and a clear Brexit path, UK businesses should, at last, be able to plan for 2020 with a greater sense of clarity.”
The challenge for the UK’s new government in addressing regional decline is laid bare in the data. Although there are almost 126,000 London businesses in significant distress, this figure is dwarfed by the other UK regions where more than 358,000 businesses are wrestling with significant financial distress.
In terms of industries, both the real estate and property sector and retail have seen increases in the number of businesses in significant distress with a year-on-year Q4 increase of 13% and 2% respectively. Palmer added that the macro economic climate is complicated and that the figures suggest that there will be clear winners and losers. “Currently, we do not know if the failing performance within some sectors is due to short term confidence issues, or more fundamental economic and structural issues.”
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