UK firms ‘could be pushed over edge’ after record rise in financial distress
Consumer-facing sectors such as hotels, leisure and retailers have particularly been under pressure, advisory firm Begbies Traynor said.
An insolvency expert has raised fears that UK businesses will be pushed “over the edge” after new figures showed a record-breaking rise in the number of firms at serious risk of collapse.
Consumer-facing sectors such as hotels, leisure and retailers have particularly been under pressure, advisory firm Begbies Traynor said.
Its latest Red Flag Alert report showed that about 46,850 businesses were in “critical” financial distress over the final three months of 2024.
This was a 50% increase on the number of firms on the brink of collapse over the previous three-month period.
Julie Parmer, a partner at Begbies, said this increase, across nearly every sector, represented an “unprecedented level of growth in the number of firms who are at serious risk of entering insolvency in the next 12 months”.
The growth in distress was particularly sharp among hotels and accommodation businesses, which jumped by nearly 84%, leisure firms, up by 76%, and retailers, up by nearly 50%.
“After a disappointing Christmas, consumer-facing industries, in particular, are feeling the strain, with rising operational costs and higher wages adding to an already difficult situation,” Ms Palmer said.
“With many such businesses already operating on thin margins, I fear the current situation will undoubtedly push some over the edge.”
At the end of 2024, the construction sector saw the highest number of businesses in both “critical” and “significant” financial distress – with more than 100,000 in total.
Housebuilders and developers have consistently flagged weaker demand in the property market, higher building costs, and more cautious spending as factors creating much tougher conditions.
Ric Traynor, Begbies’ executive chairman, said many businesses were facing higher employer national insurance contributions this year, and would be increasing staff wages in line with the higher national minimum wage.
These costs “could be the last straw, particularly in labour-intensive sectors like retail and hospitality, who typically operate on razor thin margins,” he warned.
“So, I fear 2025 could end up being a watershed moment where thousands of UK businesses ‘call time’ after struggling to survive for years,” Mr Traynor said.
The Government has defended the policy measures announced in the autumn Budget, saying they will help it to plug a “black hole” in the country’s finances and invest in different industries to get the economy growing.
At the end of 2024, there were some 655,000 firms in “significant” financial distress, up more than a fifth on the same period in 2023, the report found.
The data was released alongside a separate new survey from S&P Global, which showed business confidence worsened this month amid warnings of job cuts and rising inflation.
Business activity among private firms nonetheless rose this month, according to preliminary data.
