The latest research from Begbies Traynor has shown that the number of UK Businesses in serious financial distress has increased by 40% in the past three years.
489,000 Companies in the UK are flagged as experiencing significant distress since the EU referendum in 2016 with the property, real estate, retail, construction and travel sectors most affected.
The most recent data for Q3 (June, July and September) found that many UK trading Businesses had increased by the end of september.
One of the Partners at Begbies Traynor comments “Three years on from the referendum and the latest Red Flag research highlights just how businesses are struggling as a result of uncertainty and a lack of investment. With a considerable increase in the number of businesses suffering significant financial distress in the last three years, there is growing frustration among businesses that they cannot plan for the future and the whole economy is lagging as a result.”
The real estate and property sector, often considered a bellwether of the UK economy, has been particularly badly affected with a 16% increase in the number of businesses in significant financial distress from Q3 2018, the highest year-on-year percentage increase across any sectors measured in the Red Flag Alert research (Q3:2018 – 43,942: Q3:2019 – 51,051). However, this deterioration has been even more marked since the EU referendum with a 78% increase in significant distress (Q3:2016 – 28,633).
Specifically, the report found property investors (businesses involved in “the buying and selling of their own real estate”) experienced a 35% increase (Q3:2018 – 10,288: Q3:2019 – 13,876) in significant distress compared to the same period last year as falling residential and commercial property prices combined with reduced consumer and business confidence impacted the sector. What’s more, the drop in demand has resulted in significant financial distress for businesses involved in “the construction of domestic buildings”, increasing by 8% (Q3:2018 – 5,825: Q3:2019 – 6,305).
Indeed, the construction sector has also fallen victim to the current economic conditions, with falling investment in the sector resulting in 11% more companies involved in “the development of building projects” suffering from significant financial distress when compared to Q3 2018 (Q3:2018 – 12,043: Q3:2019 – 13,395), and the trend extended to businesses involved in “the construction of commercial buildings” with a 5% increase in significant distress (Q3:2018 – 2,271: Q3:2019 – 2,394).
The latest research also highlights that financial distress is now affecting a number of key consumer-facing sectors. The failure of Thomas Cook is symptomatic of broader malaise as consumers tighten their belts due to current economic uncertainty. The data highlights there are 5,599 hotels and accommodation businesses in significant financial distress, an increase of 7% from 5,230 in Q3:2018.
Elsewhere, the tough trading conditions for high street retailers has now spread to the e-commerce retail sector. Often viewed as immune to the travails of the sector, the latest figures demonstrate that online retailers have experienced a 10% increase in significant distress since Q3:2018 (Q3:2018 – 8,154: Q3:2019 – 9,024), showing that these issues are not isolated to the high-street and this reinforces the need for firms to have a unique and competitively priced offering. Indeed, the overall increase in retailers in financial distress since Britain voted to leave the EU has been considerable with more than 31,000 retailers now in significant distress up by 28% since Q3:2016 (28,633).
Other sectors also reliant on consumer spending have been hit by reduced consumer confidence, including sport and health clubs which experienced a rise of 8% in significant financial distress, rising from 8,408 in Q3:2018 to 9,040 in Q3:2019, and leisure & cultural activities by 4% to 13,047 (Q3:2019) from 12,488 (Q3:2018), according to this research.