By Aysu Bicer
LONDON (AA) - A record number of UK businesses are experiencing significant financial distress, according to data released Friday by a firm specializing in corporate restructuring. Begbies Traynor.
Begbies Traynor's The Red Flag Alert report for the third quarter of 2024 revealed that 632,756 companies are now classified as being in ‘significant’ financial distress, marking a 32% increase compared to the same period last year. The surge highlights the toll of high inflation and lingering debt from the pandemic on businesses.
Julie Palmer, partner at Begbies Traynor, emphasized the widespread nature of the crisis.
"With over 630,000 firms now in significant financial distress, more than 30% 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 said. "The toxic effect of high inflation is still filtering down to businesses."
Nearly all sectors analyzed in the report saw an increase in financial distress, with utilities companies experiencing the sharpest rise at 19.3% year-on-year. Other sectors hit hard include food and drug retailers (+10.4%), financial services (+9.94%), and bars and restaurants (+8.7%).
Despite the concerning figures, the report also offered a positive note, showing a 17% decline in the number of businesses classified as being in 'critical' financial distress—those on the verge of insolvency—compared to the previous year.
However, Palmer cautioned that certain sectors, particularly construction, remain under severe pressure due to rising material and labor costs, with further insolvencies expected, especially among subcontractors.