The number of firms facing ‘significant’ financial distress has increased sharply over the past year as businesses continue to grapple with an “extremely testing” business environment.
According to Begbies Traynor’s Red Flag Alert, the number of firms reporting ‘significant’ financial distress jumped by nearly 10 per cent in the second quarter, to 601,950.
This was driven by firms in the travel & tourism sector, which recorded a 20 per cent increase in distress. Hotels & accommodation saw a 16 per cent increase in distress while bars & restaurants saw a 12 per cent increase.
Although consumer facing firms were hit the worst, levels of distress increased across 20 of the 22 sectors covered in the Red Flag Alert.
Looking back over the year as a whole, the number of firms reporting ‘significant’ financial distress has increased by 37 per cent on the second quarter of last year.
Julie Palmer, partner at Begbies Traynor, said 2024 was shaping up to be “another tough year” for UK businesses. “It is a particularly difficult situation for businesses in consumer facing sectors, such as hospitality,” she said.
Palmer noted that although inflation had fallen closer to target, consumer spending remains relatively subdued while firms have continued to face stubborn wage pressures.
“This, combined with one of the wettest summers on record, continues to significantly impact trading,” she added.
The challenges faced by consumer-facing firms were laid bare in new research published today by the Office of National Statistics (ONS).
The research showed that UK households have been unwilling to spend given the range of headwinds they have faced over the past couple of years. According to the ONS, the savings ratio has increased from 6.6 per cent in the second quarter of 2022 to 11.1 per cent in the first quarter of this year, well ahead of the average during the 2010s.
“These increases have coincided with cost of living pressures, weak consumer confidence and slower growth in household consumption,” the ONS said.
Ric Traynor, executive chair at Begbies Traynor, said that the macro-economic environment remains “extremely testing” for businesses.
“There might be a greater sense of optimism in certain corners of the economy, but this is yet to translate into anything meaningful for the hundreds of thousands of businesses fighting for survival,” Traynor said.