UK business insolvencies and distress indicators continue to rise

UK business in stormy watersAn alarming number of businesses are in either significant or critical financial distress, according to the latest Begbies Traynor Red Flag Alert, issued just the day before the Insolvency Service revealed the figures for Q1 (January to March) 2019.

484,000 UK firms, or 14%, are in “significant financial distress” while the numbers of those in “critical financial distress” have risen by 17% in Q1.

Begbies Traynor partner Julie Palmer said: “Many UK businesses are currently in limbo and deferring major investment decisions. This combined with consumers holding back on big ticket purchases has resulted in increasing significant distress across many sectors.

“Capital intensive sectors – such as construction and property – are suffering as both business and consumers have taken a cautious approach and limited their exposure.”

These figures would seem to be borne out by the Q1 Insolvency statistics, which showed a continuing upward trend, primarily in CVLs (Company Voluntary Liquidations) and CVAs (Creditors Voluntary Arrangements). Administrations, too, had reached their highest quarterly level since the same quarter in 2014.

CVLs increased by 6.2% compared to Q4 2018, administrations were up 21.8%. and CVAs increased by 43.1%.

Top of the list, as they have been for some time, were the wholesale and retail trade’s repair of vehicles industry sector, which saw the largest increase in underlying insolvencies, with 67 extra cases compared to the 12 months ending in December 2018. This was closely followed by the administrative and support services sector. Next highest were Manufacturing and accommodation and food services.

However, it is possible that the pressure to meet rent and rates, and the continued struggles of High Street retailing account for some of the significant rise in CVAS in the first quarter of 2019 when compared to the last three months of 2018.

No end in sight to the pressures facing UK business

While it would be easy to blame the continued uncertainty over Brexit, Begbies Traynor executive chairman, Ric Traynor, said although this was “the main driver” there were other factors involved, including the combination of faltering European economies and a potential trade war between the US and Europe.

To this list I would add the decline in trade with China which is down to these same factors combined with last year’s slowing growth there.

With the economy being predicted to flatline for the rest of the year and investment sluggish, it seems that UK businesses are facing a perfect storm in their struggle to survive and grow.

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