The number of businesses in ‘significant’ financial distress is 481,000, up by 15,000 during the fourth quarter of 2018 after a winter of uncertainty, according to the latest Red Flag Alert research from Begbies Traynor.
The hardest hit sector was real estate and property, which not only saw a 7% (3,134) increase in the number of companies in significant distress from Q3 2018 to Q4 2018, but a 9% year on year increase, equating to 4,013 extra businesses.
The insolvency firm’s research data, which monitors the financial health of UK companies, also shows that thousands more companies in support services (4,245, a 4% increase), construction (2,599, a 4% increase) and professional services (1,027, a 4% increase) were plunged into significant financial distress during Q4 2018.
Surprisingly, the figures show that retail was not as badly affected as expected, with only a 2% increase in the number of companies in significant financial distress between Q3 and Q4 2018. This equated to an additional 529 businesses. However, Q4 is typically a strong cash trading period for most retailers, with any underlying problems in this sector likely to appear during Q1 2019.
Such was the impact of the slow end to the year that the number of companies in ‘Critical Distress’ has risen 25% in comparison to the same time in 2017 to 2,183.
Julie Palmer, a partner at Begbies Traynor, said: “After a period of relative stability, these figures for Q4 show that UK businesses have experienced a winter of discontent. Customers for traditional shop-front retailers are going online and the ongoing uncertainty surrounding Brexit is having an effect on investment in sectors such as property and construction. It seems, for the last quarter at least, that big business is holding out for a decision on the terms of Brexit in order to see where investment is best placed, which is having a knock-on effect on consumer confidence.”
She added: “With 2019 set to be a year of change, businesses will need to adapt and rapidly evolve to survive. The UK has awoken to a brave new world, and while businesses need to find out what grows best in their new environment, investors want to find out which fruit isn’t poisonous to pick.”