The number of UK businesses in significant financial distress has risen by 22,000 to 489,000 in the past year with businesses in the property sector and construction industry hit worst of all.
According to the red flag research, conducted by Begbies Traynor, the real estate and property sector has faced the largest decline into financial strife between quarter 3 2018 and the third quarter of 2019.
In the past year, 16% more businesses in the property sector are facing significant financial distress marking a larger increase in struggling companies than any other sector.
In the third quarter of 2018, 43,942 firms in property were considered at risk, this figure has now increased to 51,051.
Worryingly, the political landscape has had a particular strangle hold on the sector since the referendum in 2016. Since the UK voted to leave the EU and the third quarter Red Flag results of 2016, 78% more property businesses have experienced significant financial distress.
35% more property sellers buying and selling their own real estate are now in financial distress rising from 10,288 a year ago to 13,876 in the third quarter of this year.
Construction companies working in domestic and residential buildings have faced increased economic distress with struggling businesses rising from 5,825 to 6,305, an 8% increase over the year. 5% more businesses working in commercial construction are also facing increased challenges.
Overall, the construction sector has been hugely affected by the current economic climate with 11% more companies being dragged in significant financial distress.
Julie Palmer, Partner at Begbies Traynor, said:
“Three years on from the referendum and the latest Red Flag research highlights just how businesses are struggling as a result of uncertainty and a lack of investment. With a considerable increase in the number of businesses suffering significant financial distress in the last three years there is growing frustration among businesses that they cannot plan for the future and the whole economy is lagging as a result.
“Much investment is on hold as businesses have their hands tied by not knowing what the state of play will be post-Brexit and whether the agreements or contracts they currently have in place will still be valid following the expected withdrawal, which is contributing to stifled growth nationwide.
“What’s clear is that until businesses and consumers alike are given clarity on the economic situation post-Brexit, stagnation will remain the norm and productivity will continue to suffer.
Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:
“This is a worrying assessment of the UK economy, with nearly 500,000 businesses now in significant financial distress – almost 150,000 more than three years ago.
“While the latest GDP figures has seen growth of 0.3%, we should not underestimate the extent of the problems on the horizon.
“The broader macroeconomic environment is a real concern and could ultimately have a much greater impact on UK business than the specific terms of any Brexit deal. The growth in protectionist trade policies, combined with faltering consumer demand in both the US and Europe are a real concern. Add to this the concerns surrounding China’s debt, which now stands at three times its GDP and we could be in for the perfect economic storm.
“With productivity falling at home and investment stifled, the UK needs to regain its confidence and start moving forward positively in order to get out of the economic malaise it’s currently finding itself in.”
Will the property sector begin to thrive once a definitive Brexit outcome is reached? Will the sector continue to struggle in the year ahead?
