Nearly 4,000 companies in the Bristol area are in ‘significant’ financial distress as the economy continues to teeter on the brink of recession, according to a new report.
The 12% increase on the previous quarter shows stubbornly high interest rates and inflation alongside weak consumer confidence and rising and unpredictable costs are combining to create major challenges for struggling businesses, the ‘Red Flag Alert’ report by independent insolvency firm Begbies Traynor says.
The report, which monitors the financial health of UK companies, said the total of 3,902 ‘at risk’ businesses in and around Bristol was up 4.3% on the same period last year.
Sectors suffering the most are construction and retail, according to the report, with quarterly increases of 22.8% and 20.1% respectively in the number of companies in significant financial distress.
Nationally, the latest Red Flag Alert research for the fourth quarter of last year recorded 539,900 businesses in significant distress, 12.9% up on the third quarter and 5.6% higher than the same period in 2022.
The gloomy report comes shortly after the Bank of England warned there is a 50-50 chance of a technical recession this year.
The levels of ‘critical’ financial distress also jumped dramatically in the final three months of last year – up 25.9% on the prior quarter – leaving more than 47,000 businesses near collapse in the UK at the start of 2024, Begbies Traynor said.
The key sectors driving this increase were the construction, real estate & property and support services sectors, up 32.6%, 24.7% and 23.6% respectively.
Begbies Traynor Bristol partner Paul Wood 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, later this year, we could see some respite for companies as inflation looks like it may reach more palatable levels, which in turn should result in interest rates starting to decrease from current heightened levels.
“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 isn’t improving for an economy that is still firmly in recovery mode post-pandemic. For many businesses, I fear soldiering on in this environment will prove to be one step too far.”
The Red Flag Alert has been measuring and reporting corporate financial distress since 2004, and over that time has become an industry benchmark of the underlying health of companies across every sector and region of the UK.
It measures corporate distress signals, drawing on factual legal and financial data from a wide range of relevant sources.
Firms with ‘significant’ problems are those with County Court Judgments (CCJs) of less than £5,000 filed against them or that have been identified by Red Flag’s credit risk scoring system, which screens companies for a sustained or marked deterioration in key financial ratios and indicators, including working capital, contingent liabilities, retained profits and net worth.
