NuGen Properties

Number of construction companies in critical distress jumps by a third

The latest Begbies Traynor Red Flag Alert report into the nation’s corporate health asserts that 7,849 construction companies are in ‘critical’ financial distress, up from 5,919 just three months ago.

There has also been a 15% increase in the number of construction firms in ‘significant’ financial distress, up from 72,257 three months ago to 83,332 today.

Construction once again tops the list of distressed sectors in accountancy group Begbies Traynor’s analysis, followed by support services and real estate & property services.

Real estate & property services has seen a 25% leap in companies in ‘critical’ financial distress, up from 4,994 to 6,228, and a 21% jump for those in ‘significant’ distress, up from 51,240 to 62,176.

Across the UK as a whole, more than 47,000 businesses start 2024 on the edge of collapse, the report says, which is a 26% jump on the previous quarter. In fact, the fourth quarter of 2023 was the second consecutive quarter to see a jump of this size in critical distress.  

Begbies Traynor partner Julie Palmer 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.”

Executive chairman Ric Traynor added: “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.”

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Easy to work with, Jordan and the team were professional and were easy to communicate with.
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