Insolvency practitioner Begbies Traynor’s latest Red Flag Alert report, out today, shows that at the end of the first quarter (Q1) of 2024 there were 83,559 construction companies in ‘significant’ financial distress and a further 6,141 in the more severe category of ‘critical’ financial distress and a further
The number of construction companies in ‘significant’ financial distress was much the same as it was three months ago – 83,559 compared to 83,332, a rise of less than 0.3%. However, it remains a 38.6% year-on-year increase.
The number of construction companies in ‘critical’ financial distress was down 22% on the previous quarter (7,849) but is still marginally higher than the 5,919 that were in critical condition six months ago.
Construction remains the most at risk sector of the UK economy, according to Begbies Taylor’s analysis. Across the economy, 554,554 UK businesses are now in ‘significant’ financial distress – a 30.8% rise compared to Q1 2023. Construction companies account for 15% of this total. Support Services are also 15% of the total
Begbies Traynor partner Julie Palmer said: “Despite some optimism as we entered the new year, 2024 has so far been characterised by a continuation of the same pressures that plagued companies in the UK throughout 2023.
“Since the pandemic, hundreds of thousands of UK businesses depleted their financial reserves and loaded their balance sheets with increasingly unaffordable debt which for many may simply be too great to bear.
“As with the prior quarter, the picture is particularly concerning in the consumer facing sectors. We are starting to see this translate into larger companies entering insolvency, a trend that I expect to continue while consumer confidence remains uncertain. On top of that, the higher levels of financial distress in bellwether sectors such as real estate and construction point to a troubled UK economy.
“Right now, many companies will be pinning their hopes on a meaningful cut to interest rates later this year, but the Bank of England continues to be hawkish, so it is unlikely to make a cut in the near-term given inflation is still higher than expected.
“All of this means that these pressures are here to stay, and I fear this will result in thousands of businesses failing in the coming months as the constant pressures will become too great for many.”
Ric Traynor, executive chairman of Begbies Traynor, added: “We are three months into 2024 and the considerable economic challenges facing many companies up and down the UK show no immediate sign of abating. The macroeconomic conditions that made last year so difficult have continued to exert unrelenting pressure on corporate balance sheets.
“Consequently, our own red flag data shows a marked increase in British firms moving towards insolvency compared to the same period last year.
“Growing geopolitical instability is compounding this problem and impairing the UK economy’s ability to pick up some much-needed momentum post-pandemic. The UK economy is in a precarious enough position as it is, and further instability could cause fuel prices to rise markedly, increasing inflation and slowing the appetite for the predicted cuts to interest rates.
“Unfortunately, there’s no quick fix for our economy and with inflation falling slower than expected, hope of the Bank of England cutting interest rates significantly in the near future seems to be fading.
“Sadly, the pressing issues facing businesses today will simply push many over the edge and contribute to the current high level of UK corporate insolvencies.”
