According to the latest “Red Flag” report prepared by bankruptcy specialists Begbies Traynor, the United Kingdom is experiencing a serious economic crisis: more than 47,000 businesses are on the verge of collapse. This alarming discovery follows a 25% increase in the number of companies facing “critical” financial difficulties in the last quarter of 2023, the second consecutive period with similarly bleak data.
The report emphasizes that the main burden of economic upheaval has fallen on the construction sector and real estate: they account for 30% of all businesses facing a crisis. Specifically, the number of companies close to bankruptcy in the construction industry increased by 32.6%, in healthcare and education by 41.3%, in real estate by 25%, and in the sector of auxiliary services by 24%.
Bankruptcy experts attribute the sharp increase in the number of financial problems to a combination of factors creating the “perfect storm” for British businesses. High interest rates, rampant inflation, low consumer confidence, and unpredictable production costs have created unprecedented challenges for businesses in all sectors. Additionally, the decision of the Bank of England to raise interest rates from 0.1% at the end of 2021 to 5.25%, aimed at curbing inflation, increased the cost of loans and proved detrimental to companies that relied on their availability. Most affected businesses are located in London and the southeast of the country; there are fewer of them in the northeast and in Northern Ireland.
Susannah Streeter, head of the finance and markets department at Hargreaves Lansdown, warned that the number of bankrupt companies has already reached the highest level since the 2008 financial crisis. According to her forecasts, a significant portion of companies currently showing signs of distress may go bankrupt in the next year. As a result, the impending recession in the United Kingdom will become unavoidable.
Top 10 sectors facing a “critical” financial crisis:
1. Construction (7,849 businesses)
2. Auxiliary services (7,096)
3. Real estate and property services (6,228)
4. Professional services (4,347)
5. Retail trade (3,133)
6. Telecommunications and IT (2,830)
7. Healthcare and education (2,719)
8. Mass media (1,828)
9. Financial services (1,373)
10. Retail trade in food and pharmaceuticals (1,343)