More than 17,500 Welsh business found themselves in 'significant' financial distress during the third quarter of 2022, according to a new report.
The latest figures from Begbies Traynor's 'Red Flag Alert' - which monitors the financial health of British companies - found that Wales saw a 4% increase in the number of companies struggling between July and September 2022 to 17,527.
This was a 5% rise on the same periods in 2021. A third (5,166) of those ailing firms are in Cardiff and Swansea.
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Construction businesses in the region are the most affected, with 2,796 companies in significant financial distress during the past three months.
The biggest quarterly gains were seen among food and beverage retailers with the sector seeing a 9% jump in the number of businesses in difficulty, closely followed by the industrial and manufacturing sectors both with 8% rises.
Across the UK, the 'Red Flag Alert' research for Q3 2022 recorded almost 610,000 businesses in significant distress following an economically tumultuous quarter characterised by rising costs and low confidence.
Representing an 8% increase since Q3 in 2021 and a 4% quarter-on-quarter rise, the data paints a worrying picture for UK businesses as a growing number are now falling victim to the exceptional economic pressures that continue to build in the economy.
With inflation in the UK above 10%, the report warned that UK businesses now face the prospect of interest rates climbing above 5% - a move that could force distressed firms into insolvency as built up debt over the last decade becomes unserviceable.
There are also concerns about a steep increase in County Court Judgements (CCJs), which are often a key early sign for future insolvency. Official data shows the number of CCJs for the first nine months of 2022 at 63,831 - more than the entirety of either 2021 or 2020 and nearly the second highest total since 2010.
Similarly, Winding Up Petitions, a much more serious action lodged by creditors, were 237% higher than the same period 2021, showing that companies are utilising aggressive legal enforcement measures to recoup debts.
Huw Powell, managing partner at Begbies Traynor across South Wales, said: "We are in economically turbulent times, where businesses are being battered on multiple fronts by increasing costs in energy, raw materials and labour. Coupled with the increased cost of borrowing and the prospect of rising corporation tax now around the corner, this is a very challenging time to be in business. As a region reliant on the visitor economy, it is troubling to see the hotel sector and retailers experiencing the most significant increases in financial distress during recent months.
“The economy, which had already been weakened by two years of pandemic disruption, now faces the very real possibility of a recession at a time when businesses were in desperate need of a sustained period of stability so they could get back on their feet.
“What we have instead is a situation where input costs are soaring and businesses that borrowed to survive for years and are stuck with levels of debt that they may be unable repay – especially with interest rates expected to rise to circa 6% in 2023.
“We’d urge company directors and business owners who are worried about their ability to trade through this difficult period to seek professional advice in order to understand what steps they might be able to take to put them on a stronger footing.”
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