Thousands of South West companies now classed as being in ‘significant’ financial distress

Thousands of South West companies are now classed as being in ‘significant’ financial distress.

A combination of rising interest rates, debt, subdued consumer confidence, higher material and labour costs, and wider economic uncertainty are putting considerable financial pressure on businesses across the region, with 30,052 in significant financial distress. This represents a quarterly increase of 4.2%, and an annual rise of 8.3%.

The latest figures from Begbies Traynor’s ‘Red Flag Alert’, which monitors the financial health of UK companies, highlighted particular sector hotspots, with the retail and real estate & property sectors seeing annual increases of 16.7% and 13.1% respectively in the number of companies in significant financial distress.

Nationally, the latest Red Flag Alert research for Q2 2023 recorded 438,702 businesses in significant distress. This is an increase of 8.5% on the same period last year, and 3.7% higher than in the preceding three months. Of the 22 sectors monitored by Red Flag Alert, all experienced a growth in significant distress rates, with an average increase across the sectors of 8.1%.

Paul Wood, partner at Begbies Traynor in Bristol, said: “Higher interest rates are causing real pain across the economy. Whether that’s because consumers are cutting back on spending as they face higher mortgage and loan repayments, or businesses seeing the cost of their debt rising, it’s putting extra strain on many companies still suffering from the hangover caused by the pandemic, the impact of conflict in Ukraine, higher energy bills and spiralling inflation.

“As the Bank of England tries to battle inflation with almost monthly interest rate rises, companies are having to get used to the fact that the era of ‘cheap money’ is over, with rates now expected to remain at these elevated levels for some time to come.

“For businesses that loaded up with debt during the benign inflationary environment since 2008, that’s a huge extra financial burden in an environment compounded by consumers reining in spending. It’s no wonder that the number of companies facing significant distress has increased since last year.”