Research by insolvency specialists Begbies Traynor shows that there are now 484,000 UK businesses in significant financial distress with the property, leisure and tourism sectors particularly badly affected.
The Red Flag Alert data for Q2 2019, which monitors the financial health of UK companies, found that 14% of all UK businesses were experiencing ‘significant’ financial distress at the end of June 2019, with the average debt of insolvent companies more than doubling to £66,226 a year, from £29,872 in 2016. There was also a marked increase in the number of businesses in critical financial distress during the same period – often a precursor to formal insolvency – with a rise of 5% year-on-year.
Businesses reliant on the consumer economy continued to be impacted by falling sales which has affected financial performance across a number of key verticals. The latest Red Flag Alert research highlights rising financial distress in the following sectors; hotels & accommodation (8% rise, 5,095 (Q2 2018) to 5,516 (Q2 2019), sport & health clubs (5% rise, 8,481 (Q2 2018) to 8,940 (Q2 2019) and leisure & cultural activities (4% rise, 12,524 (Q2 2018) to 13,069 (Q2 2019). Additionally the online retail sector (sales via mail order or the internet) experienced a 12% increase in significant financial distress from 5,243 in Q2 2018 to 5,871 in Q2 2019.
Additionally, businesses indirectly reliant on the health of the consumer economy continued to be hit hard with real estate and property companies most affected by the weakest consumer spending since records began in the mid-1990s. This sector saw a 15% year-on-year increase in the number of companies in significant financial distress, rising from 43,085 in Q2 2018 to 49,342 in Q2 2019. The property/real estate sector also experienced a 2% quarter on quarter increase in significant distress (Q1 2018 – 48,309 to Q2 2019 – 49,342) – the highest quarterly percentage increase across any sectors measured in the Red Flag research.
Financial Services
The research reveals increasing levels of significant distress within the financial services sector, with 12,666 businesses now affected, an increase of 5% compared to Q2 2018.
Not surprisingly, the increase in significant distress within this sector has negatively impacted the overall performance of London with a substantial 5% year on year rise in significant distress – the highest of any reported region with the Q2 2019 Red Flag Alert research. This deterioration has been exacerbated by the cooling of the real estate sector in the capital, all which has resulted in more than 5,000 London businesses slipping into significant distress in the last year (117,683 in Q2 2018 to 123,196 in Q2 2019).
Even though the sector has shown some recovery in the last quarter, it continues to be affected by the uncertainty surrounding Brexit. Once a final decision has been agreed, then stability should return as the fundamentals of this sector remain reasonably good, subject to the other macro economic influences.
