The firm’s Red Flag Alert report shows that during Q3 2018, 469,006 companies across the UK were in significant financial distress - an increase of almost 21,000 on Q3 2017. 

Significant distress has fallen 1% since Q2 2018, indicating that UK business health may be showing some signs of stability, but the firm highlights some sectors are struggling more than others.

Significant business distress increased considerably year-on-year in the real estate sector, up 16% (Q3:17: 37,519, Q3:18: 43,505); utilities were up 13% (Q3:17: 2,799, Q3:18: 3,153), hotels & accommodation 10% (Q3:17: 4,717, Q3:18: 5,196) and financial services 9% (Q3:17: 11,018, Q3:18: 12,049).

Quarterly financial performance has been lifted by a strong summer for some sectors, notably food and drug retailers, construction, general retail, printing and packaging and professional services, all of which reported a 2% drop in levels of significant distress.

Julie Palmer, partner at Begbies Traynor, said: ‘The UK’s barbeque summer - coupled with major events such as the World Cup - provided a feel good bubble for the UK economy.

‘However, the fading of the summer sun has been accompanied by a reality check as consumers tighten their purse strings, with a 0.8% drop in retail sales from August to September, which included the largest decline in food sales since October 2015.

‘This change, coupled with falling house prices and higher inflation across key essentials such as energy and fuel, have made UK consumers cautious, particularly as economic certainty around the details of the Brexit deal remain stubbornly elusive.’

Palmer pointed out that while recent headlines have documented a string of problems for high street retailer, ‘other “bellwether”’ sectors such as property and financial services, as highlighted in these figures, are showing worrying signs of increasing distress that needs to be addressed if we are to avoid a spiral towards static economic growth.’

The firm’s analysis also shows that 25% of the companies in critical distress in the previous quarter have dissolved, a total of 537, while 35% or 760, have seen their health improve.

Ric Traynor, executive chairman of Begbies Traynor Group, said: ‘While the year-on-year increase in the number of businesses in significant financial distress is disappointing, the fall in distress between Q2 and Q3 2018 is particularly welcome.

‘This, combined with strong wage growth, demonstrates that the widely anticipated economic meltdown ahead of Brexit has yet to materialise. However both investor and consumer confidence is fragile.’

Report by Pat Sweet