The latest Red Flag Alert from independent insolvency firm Begbies Traynor has found that 16% of all UK businesses were in financial distress at the end of March.
In the same period last year 477,210 businesses were in significant distress, itself a 33% increase on the previous period.
Further to this, the number of businesses in “critical distress” – which Begbies Traynor notes can be seen in many cases as precursor to formal insolvency – rose by 17% year-on-year in March.
Financial services saw a 5% increase in the number of businesses under significant distress to 12,728, Brexit uncertainty cited as a significant factor.
The property sector was the most affected, recording a 12% increase, while construction, which Begbies Traynor describes as a bellweather, saw a 10% increase in the number of businesses in significant distress.
Julie Palmer, partner at Begbies Traynor, pointed to deferred investment decisions and consumers holding back on “big ticket purchases” as factors affecting businesses across sectors.
“This trend is reflected in our latest Red Flag research which clearly shows that capital intensive sectors – such as construction and property – are suffering as both business and consumers have taken a cautious approach and limited their exposure,” Palmer said.
She added that concerns over these issues were also spreading to the UK’s service sector and that “a combination of political certainty and a commitment to support UK business” is needed to stop this from continuing.
Meanwhile the Insolvency Service released its 2019 data today, which found a 6.3% quarter-on-quarter increase in total underlying company insolvencies in Q1 2019 to 4,187.
This underlying figure discounted a large number of personal services companies that have recently become insolvent, citing changes in IR35 rules in 2016 and/or changes in VAT flat rate as the primary reason for becoming unviable.
Stuart Frith, president of insolvency and restructuring trade body R3, said that this increase in underlying insolvencies – the highest first quarter figures since 2014 – is down to “stuttering consumer confidence and, to a degree, Brexit uncertainty on the business community”.
“The first three months of each year are where we typically see the consequences of missed targets in the run-up to Christmas and the end of the year, particularly in the retail sector,” Frith said.
“The pre-Christmas period can be ‘make or break’, and Christmas 2018 was particularly tough.”
He also said the factors pushing up insolvencies recently haven’t gone away, with consumer confidence remaining low and spending power diminished.
Meanwhile no-deal preparation and stockpiling has put pressure on businesses cashflow and that businesses trading with EU “saw orders and investment stall”, according to Frith.
Yesterday, economists at Big Four firm EY reduced their growth forecasts for the UK from 1.5% to 1.3% for 2019/20 citing lack of investment and Brexit uncertainty.
Meanwhile, GfK today released its latest UK consumer confidence monitor that showed that in April confidence remained steadily negative at -13 for the third month in a row.