Most at risk sectors of UK economy revealed

The sectors of the UK economy most at risk from financial distress have been identified in a new report. 

Begbies Traynor's "Red Flag Alert" study, which has monitored the financial health of British companies for the past 15 years, paints a worrying picture for UK businesses with increasing numbers falling victim to pressures building since the pandemic began two years ago.

The research found that there were 106,047 distressed companies in the South East which was the largest number in the UK outside of London.

Top 10 Distressed Sectors

1. Support Services
2. Construction
3. Real Estate & Property Services
4. Professional Services
5. Telecommunications & IT
6. General Retailers
7. Health & Education
8. Yorkshire
9. Media
10. Other Manufacturing

Julie Palmer, partner at Begbies Traynor, said: "Businesses that have bravely battled through the pandemic could now start to fail as the pressures they face become too much.

"Support from the Government such as furlough payments, tax reliefs and a moratorium on landlords being able to evict businesses due to rent arrears cannot go on forever.

"Without these measures in place to protect them, a rising number of companies will have no other option but to relinquish their business after two years of struggling on in the economic uncertainty that has been tempered by measures to combat the impact of coronavirus.

"The lag effect of the economic fallout from Covid, plus significantly higher inflation, has created a perfect economic storm for many companies, particularly the UK's SME sector, which will undoubtedly drive insolvency rates even higher."

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The latest data indicates that the debt storm which has been brewing for years, but had been held off by measures to provide breathing space for companies, could now be about to hit, sending shockwaves through many industries.

According to Ms Palmer, inflation is now the greatest threat to the economy with the true rate potentially running far beyond the official 5.4% rate and possibly many multiples more than the Bank of England's target of 2%.

Today, rising wage, energy and materials costs mean the CPI figures are showing only part of the story in the UK and the subsequent impact on the public's disposable income is expected to be far greater.

She continued: "The construction sector looks particularly vulnerable as raw material availability, combined with record inflation, has significantly reduced the margins for many SMEs. We are also seeing evidence of over-trading within construction as the sector's boom post-lockdown has caused real cashflow issues that are now impacting on businesses."

Although official Government support measures are unwinding, Ms Palmer says there are indications that the authorities are willing to help businesses which are trying to fight on.

She added: "Anecdotally, we are hearing stories about HMRC giving companies two or even three years to pay their tax bills.

"Extra leniency may not be an official policy, but it sends a signal that officials are trying to help businesses survive - even though it might only be delaying the inevitable."