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Begbies Traynor
New research today reveals that thousands of UK businesses have experienced a deterioration in their financial health since Article 50 was triggered a little over a year ago, with increased levels of financial distress being seen across all sectors and regions of the UK.
Nationally, 477,210 firms reported 'Significant' financial distress in Q1 - up 33 per cent on the same period last year. Across the Midlands as a whole, 57,736 firms faced 'Significant' financial distress in the first quarter of the year, compared to 45,173 the previous year - a hike of some 28 per cent.
7,164 businesses in Birmingham have faced Significant financial distress in Q1 2018 compared to 5,729 during the same period 12 months ago, data released by the UK’s leading independent business recovery specialists Begbies Traynor reveals - an increase of 25 per cent. The research comes from Begbies Traynor's Red Flag Alert for Q1 2018, which monitors the financial health of UK companies.
While ‘Significant’ distress rose across every sector and region of the UK over the past 12 months, the sectors with the largest volumes of businesses in distress were Support Services (115,249 companies, up 40% year on year), Construction (60,541, up 26%), Real Estate & Property (41,624, up 46%) and Telecommunications (32,538, up 47%). Regionally, London saw the largest increase in Significant distress, up 42%, affecting 119,419 businesses in the Capital.
Other sectors that experienced large increases in financial distress over the period included Professional Services (up 46%), Financial Services (up 45%) and Automotive (up 15%); a worrying trend given the importance of these industries in the Government’s negotiations over future trade deals.
The national trend was reflected in Birmingham when comparing Q1 this year to the same period in 2017. Amongst the sectors faring worst were construction, where numbers rose from 497 to 607, up 22 per cent, telecommunications (up 54 per cent from 241 to 371), real estate and property (rising 37 per cent from 427 to 583), and the leisure and cultural sector where firms in distress went up 38 per cent from 84 to 116.
According to the research, 255,131 UK businesses ended the period in a position of negative net worth1, while 110,266 demonstrated a considerable increase in their working capital deficit; both key indicators of financial distress.
Mark Malone, Partner at Begbies Traynor’s Birmingham office, said:
“While uncertainty around the outcome of the Brexit negotiations has undoubtedly had an impact on business confidence across the UK, the economy has also faced a wide range of unexpected headwinds which have dampened progress over the past year. Currency fluctuations, rising interest rates, subdued consumer spending and a cooling property market are just some of the factors that have combined with growing political uncertainty to push nearly half a million UK businesses into financial difficulties over the past 12 months.
“The biggest concern is that should these headwinds continue, they could severely hit the Government’s bargaining power when it comes to negotiating new trade deals after the UK’s exit from the European Union. However, as the formal separation deadline approaches and we receive greater clarity from the Government over how our eventual exit from the EU will look, this should help to improve business confidence going forward.”
Ric Traynor, Executive Chairman of Begbies Traynor, commented:
“Although the UK economy is still growing, it is now starting to lag behind many other G20 members, with predicted GDP growth during 2018 of around 1.7%. The latest Red Flag figures reflect this slowdown with increased financial distress being felt across every sector and region of the UK.
“The UK’s crucial Services sector experienced a major slowdown last month, as the impact of snow disruption, inflation and Brexit-related uncertainty hit output across the sector, while the Automotive industry has also experienced a downward trend, with declining car sales, job cuts and growing fears about restrictive future trade barriers with Europe. At the same time, the UK Construction sector last month suffered its biggest drop in activity since the 2016 Referendum vote, as Brexit concerns and the fallout from Carillion’s collapse caused further delays in large infrastructure and construction projects.
“While the recent recovery in Sterling should put UK businesses who import raw materials into a stronger trading position, the biggest positive impact on business confidence is likely to come when we finally receive clarity over how our eventual exit from the EU will look. In the short term, however, the most pressing issue is whether or not the Bank of England decides to raise interest rates next month. If they do, it could push many struggling businesses, particularly those with high levels of debt, into formal insolvency.”
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