Historic jump in companies in critical financial distress

There’s been a record jump in the number of UK businesses in critical financial distress, according to insolvency specialists.

This comes at the same time as a drop in consumer confidence as more people have concerns over the UK’s financial prospects as well as their own.

In their latest report, insolvency experts at Begbies Traynor said a company can be considered in critical financial distress if they have an outstanding county court judgment of over £5,000 or face a winding-up petition.

Businesses in the most distress include those in hospitality, leisure, and retail.

While there’s often a jump at year-end of companies in critical financial distress, the report found a record increase of 50% from September to December 2024, taking the number of companies in this category to 46,583 businesses.

One factor was HMRC becoming more aggressive in recovering overdue taxes owed.

The number of UK businesses considered to be in significant financial distress also rose by 3.5% on the prior quarter to 654,765.

Ric Traynor, executive chairman of Begbies Traynor, said: “After a historic rise in critical financial distress in the last quarter of 2024, it’s clear that many distressed UK businesses are finding it almost impossible to navigate the challenges they face as we start 2025.”

“For many businesses which were already dealing with weak consumer confidence and higher borrowing costs, the increase in national insurance contributions and the national minimum wage, announced at the last Budget, could be the last straw.”

He said sectors like retail and hospitality could be impacted in particular because they typically “operate on razor-thin margins”.

“I fear 2025 could end up being a watershed moment where thousands of UK businesses ‘call time’ after struggling to survive for years,” he added.

A separate report showed a slight fall in confidence among consumers in their own finances and a much sharper one over the prospects for the wider economy.

The long-running survey from GfK showed people’s intentions to spend on big-ticket items fell while the number of people considering putting money aside in savings rose.

GfK said that was a negative for the economy as it was a sign that many people saw dark days ahead and were putting money aside for safety.

Neil Bellamy, consumer insights director at GfK, said: “New year is traditionally a time for change, but looking at these figures, consumers don’t think things are changing for the better.

“These figures underline that consumers are losing confidence in the UK’s economic prospects.”