More businesses now in distress after Brexit, says Begbies Traynor

Thousands of UK businesses have experienced a deterioration in their financial health since Article 50 was triggered a little over a year ago, according to a report which says 57,736 firms across the Midlands faced ‘significant’ financial distress in the first quarter of the year, compared to 45,173 the previous year – a hike of some 28%.

Nationally, 477,210 firms reported ‘significant’ financial distress in Q1 – up 33% on the same period last year, data released by business recovery specialists Begbies Traynor reveals.

The report said 7,164 businesses in Birmingham have faced significant financial distress in Q1 2018 compared to 5,729 during the same period 12 months ago, an increase of 25 per cent.

While ‘Significant’ distress rose across every sector and region of the UK over the past 12 months, the sectors with the largest volumes of businesses in distress were Support Services (115,249 companies, up 40% year on year), Construction (60,541, up 26%), Real Estate & Property (41,624, up 46%) and Telecommunications (32,538, up 47%). Regionally, London saw the largest increase in Significant distress, up 42%, affecting 119,419 businesses in the Capital.

Other sectors that experienced large increases in financial distress over the period included Professional Services (up 46%), Financial Services (up 45%) and Automotive (up 15%).

The national trend was reflected in Birmingham when comparing Q1 this year to the same period in 2017. Amongst the sectors faring worst were construction, where numbers rose from 497 to 607, up 22%, telecommunications (up 54%from 241 to 371), real estate and property (rising 37 % from 427 to 583), and the leisure and cultural sector where firms in distress went up 38% from 84 to 116.

According to the research, 255,131 UK businesses ended the period in a position of negative net worth, while 110,266 demonstrated a considerable increase in their working capital deficit; both key indicators of financial distress.

Mark Malone, partner at Begbies Traynor’s Birmingham office, said: “While uncertainty around the outcome of the Brexit negotiations has undoubtedly had an impact on business confidence across the UK, the economy has also faced a wide range of unexpected headwinds which have dampened progress over the past year. Currency fluctuations, rising interest rates, subdued consumer spending and a cooling property market are just some of the factors that have combined with growing political uncertainty to push nearly half a million UK businesses into financial difficulties over the past 12 months.

“The biggest concern is that should these headwinds continue, they could severely hit the Government’s bargaining power when it comes to negotiating new trade deals after the UK’s exit from the European Union. However, as the formal separation deadline approaches and we receive greater clarity from the Government over how our eventual exit from the EU will look, this should help to improve business confidence going forward.”