Half-a-million UK firms ‘financially distressed’ and thousands face insolvency as they ‘pin hopes’ on rate cuts

Nearly half a million UK businesses have become ‘financially distressed,’ with tens of thousands facing the possibility of insolvency within the next 12 months, a new report from Begbies has claimed.

The Begbies Traynor “Red Flag Alert” research shows a total of 554,554 UK businesses — within all major sectors — have entered what is considered “significant” financial distress within the past year, a 30 per cent surge since 2023.

The number of those in “critical” financial distress has jumped 20 per cent, now with a total of 40,174, namely in the construction, real estate, financial services and support services sectors.

These sectors, the report said, are the companies that could enter insolvency within the next year.

In a breakdown by region, London takes the lead, with 12,089 firms in total ‘critically’ distressed.

Julie Palmer, Partner at Begbies Traynor, said: “Despite some optimism as we entered the new year, 2024 has so far been characterised by a continuation of the same pressures that plagued companies in the UK throughout 2023.

“Since the pandemic, hundreds of thousands of UK businesses depleted their financial reserves and loaded their balance sheets with increasingly unaffordable debt which for many may simply be too great to bear.”

Palmer added that many of the companies within these sectors will be “pinning their hopes” to interest rate cuts, despite the Bank of England remaining “hawkish”.

Earlier this week, the Bank of England’s chief economist struck a middle ground on the question of when to cut interest rates, suggesting that rate reductions were “somewhat closer” than at the Bank’s last meeting.

Insolvency figures from March show there were 1,815 company insolvencies in England and Wales, which is 17 per cent lower than February.

However, the number of insolvencies remains “much higher” than during the pandemic or five-year period between 2014 and 2019.

Ric Traynor, executive chairman of Begbies Traynor, said: “The UK economy is in a precarious enough position as it is, and further instability could cause fuel prices to rise markedly, increasing inflation and slowing the appetite for the predicted cuts to interest rates.

“Sadly, the pressing issues facing businesses today will simply push many over the edge and contribute to the current high level of UK corporate insolvencies.”