Begbies Traynor warns of worsening debt crisis for UK businesses

(Sharecast News) - Business recovery specialist Begbies Traynor warned in its latest 'Red Flag Alert' on Monday, that UK businesses were grappling with a significant rise in critical financial distress, surging by 25.9% in the fourth quarter of 2023 compared to the prior quarter. The AIM-traded firm said the increase brought the number of businesses teetering on the edge of collapse to more than 47,000 as 2024 started, marking the second consecutive quarter with a roughly 25% rise.

It described the financial turmoil as widespread, with every one of the 22 sectors covered by the Red Flag Alert experiencing an increase in critical financial distress during the last three months of 2023.

Of those, 18 sectors saw double-digit growth, indicating the severity of the situation.

Specifically, the construction sector saw a sharp uptick of 32.6%, followed by health and education at 41.3%, real estate and property services at 24.7%, and support services at 23.6%.

Those sectors now represented a substantial portion of businesses in critical financial distress, raising serious concerns about their stability.

In addition to the spike in critical distress, the report revealed a 12.9% increase in the number of UK businesses experiencing significant financial distress in the fourth quarter compared to the prior three months.

That brought the total to 539,900 businesses, reflecting a 5.6% year-on-year increase from the fourth quarter of 2022.

The sectors most affected by the increase in significant financial distress were construction, with a 15.3% rise; health and education at 19.2%; real estate and property services with a 21.3% increase; and support services at 9.1%.

"After a difficult year for British businesses that was characterised by high interest rates, rampant inflation, weak consumer confidence and rising and unpredictable input costs, we are now seeing this perfect storm impacting every corner of the economy," said Begbies Traynor partner Julie Palmer.

"Now that the era of cheap money is firmly a thing of the past, hundreds of thousands of businesses in the UK, who loaded up on affordable debt during those halcyon days, are now coming to terms with the added burden this will have on their finances.

"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 ladened businesses in a higher rates environment."

Palmer said that, as seen in the last quarter, the strain being placed on companies had extended well beyond the consumer-facing businesses, with bellwether sectors like construction and real estate now in serious jeopardy as over 15,000 businesses faced high risk of failure.

"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 as the debt storm that has been brewing for years looks like it is breaking across the country."

At 1143 GMT, shares in Begbies Traynor Group were up 0.63% at 110.69p.

Reporting by Josh White for Sharecast.com.