Latest Red Flag Alert Report for Q2 2024

• The level of firms in 'significant' financial distress rose by 8.5% to 601,950 in Q2 2024 (Q1 2024: 554,554), considerably higher than Q2 2023 (439,815), up by 36.9%
• In Q2 2024, 'significant' financial distress rose particularly rapidly in the following sectors: Travel & Tourism (+20.1%), Hotels & Accommodation (+16.4%), Health & Education (+12.4%) and Bars & Restaurants (+12.2%)
• Levels of 'significant' financial distress increased in 20 of the 22 sectors covered by Red Flag Alert in Q2 2024 versus Q1 2024
• 40,613 UK businesses are in 'critical' financial distress, up 1.1% on the prior quarter (Q1 2024: 40,174) and 34.5% higher than Q2 2023 (30,186)
• Serious concerns remain over the state of the Construction, Real Estate and Support Services sectors which represent over 40% of the companies in 'critical' financial distress

The latest Begbies Traynor "Red Flag Alert" research, which has provided a snapshot of British corporate health for almost two decades, reveals a particularly worrying picture as the number of UK companies in 'significant' financial distress jumped by nearly 10% in Q2 2024 to 601,950 businesses (Q1 2024: 554,554).

The marked acceleration in the number of companies entering 'significant' financial distress was driven significantly by the Travel & Tourism (+20.1%), Hotels & Accommodation (+16.4%) and Bars & Restaurants (+12.2%) sectors. The growth in financial distress among these sectors reflects the ongoing weakness of consumer confidence in the UK, which is putting a huge amount of pressure on these consumer-facing sectors in the country.

During Q2 2024, 'critical' financial distress increased by 1.1% to 40,613 companies in the UK. This followed noticeable increases in the Automotive (+13.2%), Industrial Transportation & Logistics (+12.2%), Health & Education (+8.4%) and Bars & Restaurants (+7.3%) sectors.

With a large number of the businesses in 'critical' financial distress expected to enter insolvency over the next 12 months, the state of the Construction, Real Estate, Hospitality, Financial & Support Services sectors continue to be of concern as companies from these sectors account for nearly 50% of the businesses in 'critical' financial distress.

Julie Palmer, Partner at Begbies Traynor, said: "It looks like 2024 will prove to be another tough year for UK businesses. Six months in, and we're seeing clear signs that financial distress is growing across almost every sector.

"It is a particularly difficult situation for businesses in consumer facing sectors, such as hospitality. While a fall in inflation to more palatable levels will likely provide some relief, consumers simply aren't behaving like they used to and these businesses, who are still grappling with higher costs pushed up by higher wages, are really struggling.

"This, combined with one of the wettest summers on record, continues to significantly impact trading.

"Additionally, the situation for the consumer remains very precarious. The latest figures from the Bank of England highlights how more than three million households will come off their fixed rate mortgages over the next two years - resulting in substantially higher repayments for many - which will in turn act as a drag on disposable incomes.

"In a climate like this one, many businesses who were supported through the pandemic and its aftershocks by the Government, will be hugely concerned by the very real prospect of a prolonged period of higher interest rates.

"Many businesses who loaded up on cheap debt prior to the pandemic are simply not equipped to survive the current pressures and the financial burdens they face may ultimately prove too much.

"Indeed, HMRC, which has been fairly lenient on companies repaying pandemic funding to date, will eventually tighten its grip and I expect this to push a considerable number of companies into insolvency over the next 12 months."

Ric Traynor, Executive Chairman of Begbies Traynor, commented: "We are a little over halfway through the year and the macro-economic environment for UK companies remains extremely testing.

"There might be a greater sense of optimism in certain corners of the economy, but this is yet to translate into anything meaningful for the hundreds of thousands of businesses fighting for survival.

"The situation for many British firms remains grave, with the latest Red Flag Alert data highlighting a substantial increase in the number of businesses in significant financial distress in comparison to this time last year.

"The good news is that we now have some political certainty after the recent elections, which should result in some momentum starting to build this summer. A continuation of falling inflation levels will be especially helpful for businesses, particularly if interest rates begin to inch backwards later this year.

"Beyond these small glimmers of hope, all eyes are now on our new Government as we ask ourselves what they can do to kickstart economic growth in the UK.

"Sadly, the reality is that the Government may not be able to act fast enough to stop many struggling businesses from succumbing to the economic pressures with which they are currently grappling.

"In short, the prevailing economic situation means that we still expect to see heightened levels of company insolvencies extend into 2025 and beyond."

About Begbies Traynor Group plc

• Business recovery
• Advisory and corporate finance

o Debt advisory and finance broking; corporate finance; special situations M&A; financial advisory

Valuations

o Property, business and asset valuations

Asset sales

o Property, plant and machinery auctions; property and business sales agency

Property consultancy

Further information can be accessed via the group's website at www.ir.begbies-traynorgroup.com