More London firms are on the brink of collapse than anywhere else in the country as a “perfect storm” of rising interest rates, soaring costs and faltering consumer confidence rips through the UK.
Begbies Traynor, the insolvency accountants, revealed the extent of the problem today in its latest Red Flag report.
One of the main barometers tracking the number of firms under serious pressure, the report found that as of the last quarter of 2023 over 14,000 London companies are in “critical distress”. There were 47,000 nationwide.
The capital also makes up the bulk of the firms in “significant distress”, with 154,400 from a total of 540,000 across the UK.
It was the fourth consecutive quarter when the number of critical businesses was up by over 25% from the previous three months. Firms are defined as being in critical distress when they have County Court judgements filed against them worth over £5,000.
Julie Palmer, partner at Begbies Traynor said: “Now that the era of cheap money is firmly a thing of the past, hundreds of thousands of businesses in the UK, who loaded up on affordable debt during those halcyon days, are now coming to terms with the added burden this will have on their finances.”
Many of the firms in critical distress have gone bust within a year of being red-flagged in the report's 15-year history, making the latest edition alarming reading for business leaders, politicians and policymakers. The problems Begbies identified are also broad. They are now running beyond the consumer-facing industries directly exposed to the 14-consecutive interest rate hikes from the Bank of England, which took the base cost of borrowing to a 15-year high of 5.25% by last August.
Every sector of the 22 covered found a rise in levels of critical distress. There was double-digit growth for 18 of them.
“We are now seeing this perfect storm impacting every corner of the economy,” warned Palmer.
Construction firms were among the most exposed, with the number of firms flagged up rising by almost a third. Real Estate & Property Services rose by almost a quarter. But it was worse in the Health & Education sector, where there were over 41% more firms on the list.
While Begbies tracks smaller firms, there was a reminder today of the economic turbulence affecting big business. Trifast, the London-listed components maker which operates in Europe, Asia and the US, issued a stark profit warning, citing “low visibility and volatile demand” which had not recovered as it had hoped. Its shares fell 13%.
Palmer was forthright on the extent of the problems faced by more and more firms.
“For tens of thousands of British businesses who should be looking ahead to 2024 with some degree of optimism, the new year will bring a fight for survival.”
