Begbies Red Flag report highlights significant stress on UK businesses

By Stephen Emerson

22 January 2024

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The latest Begbies Traynor Red Flag Alert report highlights the speed at which critical financial distress is growing in the UK after the second consecutive quarter of 25 per cent growth.

The rapid growth across every sector in the economy means 47,477 businesses are starting the new year in a precarious financial position.

Historically, a significant percentage of the businesses identified by Red Flag Alert as being in critical financial distress will enter insolvency over the course of the next year.

Across every sector monitored by Red Flag Alert, the levels of critical financial distress grew quarter-on-quarter in Q4 2023, highlighting how the current economic backdrop is having a detrimental impact on every corner of the UK economy.

The key sectors driving this increase continue to be the Construction, Real Estate & Property and Support Services sectors, up 32.6%, 24.7% and 23.6% respectively, alongside Health & Education (+41.3%).

This worrying picture for UK businesses can also be seen in the growing number of businesses in significant financial distress, up nearly 13% in Q4 2023 versus the prior quarter.

As at 31 December 2023, well over half a million companies (539,900) were affected. The sectors driving this increase were Construction (+15.3%), Health & Education (+19.2%), Real Estate & Property Services (+21.3%) and Support Services (+9.1%).

Julie Palmer, Partner at Begbies Traynor, said: "After a difficult year for British businesses that was characterised by high interest rates, rampant inflation, weak consumer confidence and rising and unpredictable input costs, we are now seeing this perfect storm impacting every corner of the economy.

"Now that the era of cheap money is firmly a thing of the past, hundreds of thousands of businesses in the UK, who loaded up on affordable debt during those halcyon days, are now coming to terms with the added burden this will have on their finances.

"For some, a better-than-expected Christmas may kick these concerns down the road for a little longer, but the rapid growth in the levels of critical financial distress point to an economy that is waking up to the danger of debt ladened businesses in a higher rates environment.

"As we saw in the previous quarter, the strain being placed on companies has extended well beyond the consumer facing businesses with bellwether sectors, like construction and real estate, now in serious jeopardy as over 15,000 businesses face high risk of failure.

"Sadly, for tens of thousands of British businesses who should be looking ahead to 2024 with some degree of optimism, the new year will bring a fight for survival as the debt storm that has been brewing for years looks like it is breaking across the country."

Critical Distress by Region

London (14,221)
South East (7,884)
Midlands (5,696)
North West (4,951)
Yorkshire (3,303)
South West (3,271)
East of England (2,960)
Scotland (2,245)
Wales (1,360)
North East (836)
Northern Ireland (747)
Misc (3)

By Stephen Emerson

Stephen Emerson is the Managing Editor of The Business Magazine and is responsible for the publication's print publications and online properties including the newly launched Biz News websites in Hampshire and Dorset.

Stephen has been a journalist for 20 years and has worked at local, regional and national publications and led a team which made The Scotsman website one of the fastest growing news sites in the UK with over eight million monthly users.

He has a keen interest in technology, property and corporate finance and telling the stories of the people behind the successful firms in these sectors.