Firms in distress rise sharply

A slowdown in consumer spending has been blamed for a sharp rise in the number of firms in significant financial distress.

The latest Begbies Traynor “Red Flag” report has found that 329,834 firms were feeling the strain in the second quarter, up from 263,517 over the same period last year.

The increase was the biggest seen since 2014 and marked the largest number of firms in distress for five years.

Begbies Traynor said UK sectors relying on consumer spending had been hit the hardest, contributing to a 22 per cent rise in distressed firms in the leisure industry.

Julie Palmer, partner at Begbies Traynor, said it was worrying to see so many firms struggling as Britain begins its divorce from the European Union.

She said: “In the UK’S consumer-facing industries, weak real wage growth and rising levels of personal debt continue to put a strain on the retail, bars, restaurants and leisure sectors, where many businesses have been reluctant to fully pass on the inflationary impactoftheweakenedpound and higher staff costs from the National Living Wage, for fear of losing customers on price in an increasingly competitive marketplace.”

Small-and-medium-sized businesses represented the lion’s share of the struggling companies, rising 26 per cent but larger firms also saw a 12 per cent jump.

Ric Traynor, Begbies Traynor’s chairman, said uncertainty surrounding Brexit and the general election had added to the strain.

“These significant increases in financial distress also point to a slowdown in business investment at a time when the overall growth rate of the UK economy remains stubbornly sluggish.”