Record number of UK firms facing serious financial strain

LONDON: A record number of British businesses are facing a serious financial strain, as post-coronavirus debts squeeze all corners of the economy, a report published on Friday has found.

The warning comes after a series of businesses have been on the brink of collapse or faced insolvency this year, including retailers Ted Baker and Carpetright, restaurant group TGI Fridays and construction firm ISG.

There were 632,756 firms flagged as being in "significant" financial distress between July and September.

This was about 5 per cent higher than between April and June, and nearly a third more than over the same period last year, according to research from insolvency specialists Begbies Traynor.

Begbies said 21 out of 22 sectors monitored by its "red flag alert"report saw an increase in the number of firms in significant distress compared with the previous quarter.

The utilities sector was particularly hard-hit with the level jumping by almost a fifth, amid the energy crisis that has gripped the United Kingdom since 2021.

Julie Palmer, a partner at Begbies Traynor, said: "With over 630,000 firms now in significant financial distress, more than 30 per cent 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."

"It is also apparent that the toxic effect of high inflation is still filtering down to businesses," Palmer added.

"The construction sector, in particular, continues to struggle with the legacy of high materials and labour inflation which have led to some high-profile insolvencies recently."

There were about 4,300 construction firms in "critical" financial distress between July and September, according to the report.

Last month, construction group ISG collapsed into administration in the UK, shutting down its sites and making the majority of its 2,400 employees redundant.

ISG had worked on large projects including building and refurbishing prisons, police and fire stations, schools and offices, and was involved in numerous government contracts.

Palmer warned that she does not think "ISG will be the only major casualty in this sector with the domino effect likely to hit the sub-contractor community in due course."

Nevertheless, the total number of businesses on the brink of collapse reduced in the latest quarter, according to Begbies' findings.

There were 31,201 firms in "critical" financial distress over the period, about 23 per cent less than the previous quarter and 17 per cent fewer than the same time last year.

Ric Traynor, the executive chairman of Begbies, said the decline in the level of firms heading towards collapse was a "welcome surprise after a challenging year."

"That said, it is too early to say if this is a trend that will continue into the autumn - traditionally a busy period for corporate insolvencies," he added.

"While there are tentative signs of a recovery, uncertainty continues to loom over UK businesses," he said, adding that "many business leaders are holding their breath as they await clarity over what the forthcoming budget will bring."

Many business leaders "expect companies and investors to bear the brunt of changes to the tax regime," he said, with an increase to employer national insurance among the measures which the government has not ruled out.