UK companies facing critical financial distress surge 26% in Q4

THE number of businesses in critical financial distress in the UK jumped by nearly 26 per cent in the fourth quarter of 2023 compared with the previous three months, as more companies struggle with higher interest rates and inflation, according to a report by insolvency and restructuring practitioners Begbies Traynor.

There were 47,477 businesses in “critical” distress in the fourth quarter, according to the “Red Flag Alert” report.

Historically, a significant percentage of these businesses will enter insolvency over the course of the next year. Nearly 540,000 companies were in “significant” distress, up 12.9 per cent from the third quarter, it added.

Construction, property, health and education were among the sectors driving the increase in distress. That came as borrowing costs in the UK are stuck at the highest in 15 years, with a surprise increase in inflation to 4 per cent in December prompting traders to scale back their expectations for interest-rate cuts from the Bank of England this year. 

“For some, a better-than-expected Christmas may kick these concerns down the road for a little longer, but the rapid growth in the levels of critical financial distress point to an economy that is waking up to the danger of debt laden businesses in a higher rates environment,” said Begbies Traynor partner Julie Palmer in the report. “Sadly, for tens of thousands of British businesses who should be looking ahead to 2024 with some degree of optimism, the new year will bring a fight for survival.”

Begbies Traynor’s data shows insolvency rates are likely to speed up in 2024.

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The economic backdrop remains difficult with geopolitical uncertainty continuing to rise and a hike in the UK’s national wage, with respite not expected until later this year when inflation and interest rates may slip, said executive chairman Ric Traynor. BLOOMBERG