UK corporate financial health deteriorates since Article 50 was triggered

Ric Traynor

New research published today reveals that thousands of UK businesses have experienced a deterioration in their financial health since Article 50 was triggered a little over a year ago, with increased levels of financial distress being seen across all sectors and regions of the UK.

According to Begbies Traynor’s Red Flag Alert research for the first quarter of 2018, which monitors the financial health of UK companies, 477,210 businesses were experiencing ‘Significant’ financial distress at the end of March 2018, up 33% compared with when Article 50 was triggered on March 29, last year (Q1 2017: 358,943).

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 and 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%); a worrying trend given the importance of these industries in the Government’s negotiations over future trade deals.

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.

Julie Palmer, regional managing partner at Manchester-based Begbies Traynor, 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 distress over the past 12 months.”

She added: “Should these headwinds continue, they could impact the Government’s bargaining power when it comes to negotiating new trade deals after the UK’s exit from the European Union, which would be a major concern.”

Ric Traynor, executive Cchairman, said: “Although the UK economy is still growing, it is now starting to lag behind many other G20 members, with predicted GDP growth during 2018 of around 1.7%.

“The latest Red Flag figures reflect this slowdown with increased financial distress being felt across every sector and region of the UK.

“The UK’s crucial services sector experienced a major slowdown last month, as the impact of snow disruption, inflation and Brexit-related uncertainty hit output across the sector, while the automotive industry has also experienced a downward trend, with declining car sales, job cuts and growing fears about restrictive future trade barriers with Europe.

“At the same time, the UK construction sector last month suffered its biggest drop in activity since the 2016 Referendum vote, as Brexit concerns and the fallout from Carillion’s collapse caused further delays in large infrastructure and construction projects.”

He said: “While the recent recovery in sterling should put UK businesses who import raw materials into a stronger trading position, the biggest positive impact on business confidence is likely to come when we finally receive clarity over how our eventual exit from the EU will look.

“In the short term, however, the most pressing issue is whether or not the Bank of England decides to raise interest rates next month. If they do, it could push many struggling businesses, particularly those with high levels of debt, into formal insolvency.”

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