Construction and real estate are among the hardest hit sectors, researchers say
The number of UK businesses on the brink of bankruptcy skyrocketed by more than a quarter at the end of last year amid a “debt storm” triggered by a series of interest rate hikes, a report from a group of insolvency specialists revealed on Monday.
The latest ‘Red Flag Alert’ released by Begbies Traynor Group found that 47,477 firms in Britain were in “critical” financial distress in the final quarter of last year, as more companies struggled with inflation and borrowing costs. The figure was a 26% increase compared to the 37,772 firms that reported a “critical” level of distress in the previous three months.
The surge marked the second consecutive quarter-on-quarter period in which critical financial distress has risen by 25%, the report noted. A significant percentage of businesses facing these conditions are expected to enter insolvency over the course of the next year.
According to Julie Palmer, a partner at Begbies Traynor, soaring interest rates, “rampant” inflation and weak consumer confidence amid rising and “unpredictable” input costs have created a “perfect storm” for British businesses.
The Bank of England has steadily raised interest rates from 0.1% at the end of 2021 to the current 5.25% in an effort to tame inflation.
“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,” Palmer added. “For tens of thousands of British businesses who should be looking ahead with some degree of optimism, the new year will bring a fight for survival.”
Macroeconomic turmoil is impacting “every corner” of the UK economy, Palmer said, noting that the most serious concerns are in the construction and real estate sectors. They represent nearly 30% of all businesses in critical financial distress, according to Begbies. Researchers pointed out that all of the 22 sectors assessed saw an increase in “critical” financial distress last year.
The report also showed that almost 540,000 British companies were in “significant” distress in the final quarter of last year, up 12.9% from the third quarter. Begbies Traynor warned that insolvency rates in the UK are likely to speed up in 2024.
Source: RT
