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Business recovery company Begbies Traynor Group PLC on Friday said its latest Red Flag Report showed an increase in the number of businesses facing ‘critical distress’ in the second quarter, while those facing ‘significant distress’ remained flat on the previous quarter.
The report comes a day after the Bank of England predicted the UK to enter recession from the fourth quarter of the year.
The Manchester-based firm reported the number of businesses in ‘critical financial distress’ increased 3% in the second quarter to 1,957 companies from 1,891 in the first quarter. This results in a 37% increase from the year before. The firm defines ‘critical financial distress’ as businesses with minor County Court Judgements of less than £5,000 filed against them.
The number of companies in ‘significant financial distress’ remained flat on the previous quarter at just over 582,000 companies. ‘Significant financial distress’ are companies with CCJs of more than £5,000 filed against them.
Research by the firm found bars & restaurants, general retailers and construction sectors to be the drivers behind this increase with rises of 70%, 48% and 36% respectively.
Further, Begbies Traynor said rising inflation coupled with higher labour, material and energy prices as well as faltering consumer confidence has created an ‘exceptionally difficult’ economic backdrop for companies to operate in.
In addition, many companies have the pressure of repaying the government-backed Covid support loans granted to survive the pandemic.
Julie Palmer, partner at Begbies Traynor, said: ‘Having emerged from the pandemic, many companies were hoping for an economic boom but that has simply fizzled out, as supply chain issues and the invasion of Ukraine have taken their toll by driving up raw material and energy costs and reducing both business and consumer confidence.We are now in a very high inflationary environment that's piling pressure on businesses that were already weakened by the shock of the pandemic.’
Executive Chairman Ric Traynor added: ‘the anticipated double-digit rise in business rates next April will heap more pressure on to vulnerable businesses, despite some benefiting from the recent revaluation. With this latest research showing almost 600,000 companies in significant financial distress, we would expect the weakest to enter insolvency over the next two years.’
Shares in Begbies Traynor were up 0.7% at 141.00 pence in London on Friday.
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