Insolvencies expected to rise as thousands of firms struggle

Thousands of businesses in the UK are at risk of collapse, according to insolvency firm Begbies Traynor.

The number of companies rated as being in “critical financial distress” in the final quarter of 2022 jumped by more than a third (36%) compared to the same period a year ago, and was up 10% on the previous quarter.

It’s the sixth consecutive quarter to show a rise in businesses in critical distress.

The Red Flag alert report also found that there are 610,405 companies across the UK rated as being in “significant financial distress”, 4% higher than a year ago.

Businesses are struggling at an increasing rate due to a combination of legacy pandemic related debt, high inflation and greater pressure on consumers who are reining in their spending.

“We came into 2022 hopeful that the pandemic was fully behind us and better times were ahead, only for Russia’s invasion of Ukraine to unsettle the global economy, leading to spiralling inflation and soaring energy bills and laying the foundations for what looks like a global recession,” said Julie Palmer, partner at Begbies Traynor.

“In the UK, in particular, strikes are just piling on the pressure as staff struggle to get to work and customers stay away.”

Bosses say they are having trouble “digging deep enough” to carry on, Palmer explained.

“Although we are — hopefully — about to pass the peak of inflation and the UK looks to have avoided recession at the end of last year, the strain is very clearly showing on businesses, as insolvency rates accelerate,” added Ric Traynor, executive chairman of Begbies Traynor.

“Interest rate hikes look set to continue into Q2 2023 placing further strain on the finances of both businesses and consumers. This, combined with a far less generous business energy support scheme and legacy Covid debts, do not bode well for many SMEs, and I fear that failure rates will continue to rise well into 2024.”