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‘The backdrop is not improving’: Firms face growing financial pressure as insolvency rates start to rise

INSOLVENCY rates are accelerating as high interest rates and inflation, weak consumer confidence and rising unpredictable costs are adding to the financial pressure facing UK businesses, new data reveals.

Hundreds of Milton Keynes companies are now classed as being in ‘significant’ economic distress, according to the latest figures from business recovery specialist Begbies Traynor’s Red Flag Alert, which monitors the financial health of UK companies.

The figures show that 366 companies – led by those in the telecoms, IT and professional services sectors – are at risk of failure. The latest numbers are a 2.2% increase on the previous quarter and a 6.4% rise on the figure 12 months ago.

Julie Palmer.

Julie Palmer, partner at Begbies Traynor in Milton Keynes, said: “As we start 2024, the UK economy is in a difficult position after a challenging 12 months for businesses, who have had to grapple with multiple macro-economic pressures. As a result, we are seeing insolvency rates starting to accelerate.”

However, the rate of inflation appears to be slowing which in turn could lead to interest rates being cut, she added.

“Later this year, we could see some respite for companies,” Ms Palmer said. “That said, there are no signs of an easy fix and, with geo-political uncertainty continuing to rise and a hike in the national wage around the corner, the backdrop is not improving for an economy that is still firmly in recovery mode post-pandemic.”

Nationally, the latest Red Flag Alert research for Q4 2023 recorded 539,900 businesses in significant distress – 12.9% higher than Q3 2023 and 5.6% more than the same period in 2022. The levels of ‘critical’ financial distress also jumped dramatically in Q4 2023, up by 25.9% on the prior quarter and leaving more than 47,000 businesses near collapse in the UK at the start of 2024.

The key sectors driving the increase were construction, real estate & property and support services sectors – up by 32.6%, 24.7% and 23.6% respectively.

“For many businesses, I fear soldiering on in this environment will prove to be one step too far,” said Ms Palmer.

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