The number of businesses in significant financial distress has hit almost half a million, the highest number on record, according to an influential report.
Real estate and property, support services, construction and retail sectors were particularly badly affected, leading to 494,000 businesses struggling, according to insolvency firm Begbies Traynor’s closely followed Red Flag Alert research.
Looking at businesses during the first three months of 2019, researchers also found that a large number of those struggling were formed after 2014, suggesting younger companies are most vulnerable to failure.
The landscape of UK business is slowly changing. In order to capture the attention of consumers, businesses need to demonstrate that they not only have a compelling product or service at the right price, but also one that has strong environmental credentials to boot.Julie Palmer, Begbies Traynor
Experts predict the total number of financially distressed British businesses could cross 500,000 later this year.
Of the 22 sectors monitored by the report, 15 have seen significant increases in financial distress between the third and fourth quarter of 2019, compared to just 13 recorded in the final quarter of 2018.
Julie Palmer, partner at Begbies Traynor, explained: “Businesses and the UK economy as a whole will want to avoid a repeat performance of 2019, where distress increased to record levels on the back of ongoing uncertainty around Brexit.
“These figures clearly demonstrate the impact of this indecision, and with political certainty and a clear Brexit path, UK businesses should, at last, be able to plan for 2020 with a greater sense of clarity.
“However the macro economic climate is complicated and we are seeing clear winners and losers, as evidenced by this latest Red Flag data.
“Currently, we do not know if the failing performance within some sectors is due to short term confidence issues, or more fundamental economic and structural issues.”
Real estate and property was one of the hardest hit, with a 13% increase in the number of businesses in significant distress – the biggest leap year-on-year of any sector.
Businesses that operate as property investors saw a 30% increase in distressed companies and construction also suffered and investors held back spending due to uncertainty.
Retail also suffered, including online operations which have tended to hold up better against the high street. According to Begbies, there was a 2% increase in retailers in significant distress, but online-only retailers saw an 8% increase.
The data also uncovered a continuing disparity between London and other UK regions, with 126,000 in the Capital deemed in significant distress, whilst 358,000 businesses elsewhere are struggling.
Ms Palmer added that the data could also see shifts in other sectors through 2020 as consumers switch their attentions to how businesses react to environmental concerns.
She said: “The landscape of UK business is slowly changing. In order to capture the attention of consumers, businesses need to demonstrate that they not only have a compelling product or service at the right price, but also one that has strong environmental credentials to boot.
“The modern consumer in the UK is increasingly being motivated by impact on the planet, and so the appeal of fast fashion, like the Boohoo and Primark models, could fall from favour in 2020.
“The key for businesses will be to keep up with this trend and understand the modern demands of the consumer.”