More than 47,000 UK businesses are on the ‘brink of collapse’ following a 25% jump in the number of businesses facing “critical” financial distress in the final quarter of last year, a new report shows.

It marks the second consecutive quarter-on-quarter period when critical financial distress has risen by a 25%, the latest “Red Flag” report by insolvency specialists Begbies Traynor found.

Some 539,900 UK businesses are now in ‘significant’ financial distress, 12.9% higher than Q3 2023 and 5.6% higher year-on-year 2022: 511,093.

Every sector of the 22 covered by Red Flag Alert saw critical financial distress increase on the prior period, of the 22, 18 saw at least double-digit growth.

In Q4 2023, critical financial distress grew rapidly in the Construction (+32.6%), Health & Education (+41.3%), Real Estate & Property Services (+24.7%) and Support Services (+23.6%) sectors.

Serious concerns grow over the Construction and Real Estate sectors which still represent nearly 30% of all businesses in critical financial distress. 

Julie Palmer, Partner at Begbies Traynor, said: “After a difficult year for British businesses that was characterised by high interest rates, rampant inflation, weak consumer confidence and rising and unpredictable input costs, we are now seeing this perfect storm impacting every corner of the economy.

“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.

“For some, a better-than-expected Christmas may kick these concerns down the road for a little longer, but the rapid growth in the levels of critical financial distress point to an economy that is waking up to the danger of debt ladened businesses in a higher rates environment.

“As we saw in the previous quarter, the strain being placed on companies has extended well beyond the consumer facing businesses with bellwether sectors, like construction and real estate, now in serious jeopardy as over 15,000 businesses face high risk of failure.

“Sadly, 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 as the debt storm that has been brewing for years looks like it is breaking across the country.”

Ric Traynor, executive chairman of Begbies Traynor, commented: “As we start the new year, the UK economy is in a difficult position after a challenging 12 months for British businesses who had to grapple with a number of unrelenting macro-economic pressures that made the lives of business leaders difficult.

“As a result, we are seeing insolvency rates starting to accelerate in the UK and our own empirical data highlights how this trend is likely to speed up in 2024 as the environment takes its toll on businesses.

“Later this year, we could see some respite for companies as inflation looks like it may reach more palatable levels which in turn should result in interest rates starting to climb down from current heightened levels.

“Unfortunately, there are no signs of an easy fix and, with geo-political uncertainty continuing to rise and a hike in the national wage around the corner, the backdrop is hardly improving for an economy that is still firmly in recovery mode post-pandemic.

“For many businesses, I fear soldiering on in this environment will prove to be one step too far and I expect thousands of debt-laden businesses to start to fail this year.”