UK businesses in critical financial distress jumped 37% year on year in Q2
By Joe Hoppe
The number of UK businesses in critical financial difficulty rose 37% year-on-year in the second quarter as companies faced a combination of economic threats, according to new research from Begbies Traynor Group PLC.
The number of companies in critical financial difficulty – or on the brink of bankruptcy – rose by more than a third to 1,957, and edged up 3% from the previous quarter, the restructuring specialist said London-listed company in its second quarterly red flag alert. Another 582,452 companies said they were in serious financial difficulty, unchanged from the previous quarter.
Bars and restaurants, general retailers and the construction sectors are the main drivers of the increase, with annual increases of 70%, 48% and 36%, respectively, said Begbies Traynor.
Businesses are affected by rising inflation in the “real economy”, far exceeding the official rate by more than 9%. This, combined with rising prices for labour, materials and energy, the freeze in consumer and business confidence and pressure for many to repay government coronavirus support loans UK, means that companies are facing an exceptionally difficult environment.
County court judgments – a key early warning sign of future insolvencies – to collect business debt rose significantly, with 46,235 judgments in the first half of the year alone, compared with 59,042 judgments in all of 2021.
“After emerging from the pandemic, many businesses hoped for an economic boom, but that simply collapsed as supply chain issues and the invasion of Ukraine took their toll raw material and energy costs and reducing business and consumer confidence,” said Julie Palmer, partner at Begbies Traynor.
Ms Palmer said many businesses are struggling, but the business environment is likely to only get worse until later in 2023 or 2024.
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