The increase in financial distress since the EU referendum held in June 2016 has been considerable; there are 139,000 more businesses in distress.
Red Flag Alert data for Q3 2019 found that significant financial distress is increasingly found throughout the economy, with 20 out of 22 sectors experiencing an increase. The number of businesses in critical financial distress – often a precursor to insolvency – increased by 8% year-on-year.
Mark Halstead, Partner at Red Flag Alert, said:
“Three years on from the referendum and the data is clear – uncertainty reigns in British business. Business owners the length and breadth of the country are suffering because making plans is difficult and the whole economy is suffering as a result.”
The real estate and property sector has been 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 sector (Q3:2018 – 43,942: Q3:2019 – 51,051).
However, this deterioration has been even starker since the EU referendum with a 78% increase in significant distress (Q3:2016 – 28,633). The malaise spread across a range of property subsectors. The report found:
Financial distress is hitting hotel and accommodation businesses hard. A total of 5,599 hotels and accommodation businesses are in significant financial distress, an increase of 7% from 5,230 in Q3:2018.
Tough trading conditions affecting the high street have spread to the e-commerce sector. The latest figures report online retailers have experienced a 10% increase in significant distress since Q3:2018 (Q3:2018 – 8,154: Q3:2019 – 9,024).
The overall increase in retailers experiencing financial distress since the referendum has been significant, with more than 31,000 retailers now in significant distress – up by 28% since Q3:2016 (28,633).
Several other sectors affected by consumer spending levels are struggling:
Mark Halstead commented on the position many businesses find themselves in:
“Businesses don’t feel able to invest because of the uncertainty surrounding Brexit; until there is clarity on Britain’s relationship with Europe, consumers and businesses will be wary – leading to a sustained period of economic stagnation.”
Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:
“This is a worrying assessment for the UK economy, with nearly 500,000 businesses now in significant financial distress – almost 150,000 more than three years ago.
While the latest GDP figures have seen growth of 0.3%, we should not underestimate the extent of the problems on the horizon.
The broader macro-economic environment is a real concern and could ultimately have a much greater impact on UK business than the specific terms of any Brexit deal. The growth in protectionist trade policies, combined with faltering consumer demand in both the US and Europe are a real concern. Add to this the concerns surrounding China’s debt, which now stands at three times its GDP and we could be in for the perfect economic storm.
With productivity falling at home and investment stifled, the UK needs to regain its confidence and start moving forward positively in order to get out of the economic malaise it’s currently finding itself in.”
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