Latest Red Flag Alert for Q3 2024

• 632,756 UK businesses are in 'significant' financial distress, up 5.1% on the prior quarter (Q2 2024: 601,950) and 32.3% higher than Q3 2023 (478,176)
• 'Significant' financial distress increased in 21 of the 22 sectors covered by Red Flag Alert in Q3 2024 versus Q2 2024
• In Q3 2024 'significant' financial distress rose particularly rapidly in Utilities (+19.3%), Food & Drug Retailers (+10.4%), Financial Services (+9.94%) and Bars & Restaurants (+8.7%)
• The number of businesses in 'critical' financial distress fell quarter on quarter by 23.2% to 31,201 in Q3 2024 (Q2 2024: 40,613), 17.3% lower than Q3 2023 (37,772)
• This trend was seen in the Hotels & Accommodation (-33.5%), Construction (-28.5%) and Real Estate & Property Services sectors (-26.5%), in particular, with all experiencing a reduction in 'critical' financial distress versus Q2 2024.
• The sectors experiencing the highest numbers of companies in 'critical' financial distress were Support Services (4,860), Construction (4,324) and Real Estate & Property Services (4,099).

The latest Begbies Traynor "Red Flag Alert" research, which has provided a snapshot of British corporate health for almost two decades, highlights the challenging conditions UK businesses continue to face, with the number of companies facing 'significant' financial distress up c.5% in Q3 2024 to 632,756 businesses (Q2 2024: 601,950).

The steady increase in companies experiencing 'significant' financial distress was driven by noticeable increases in distress in the Utilities (+19.3%), Food & Drug Retailers (+10.4%), Financial Services (+9.94%) and Bars & Restaurants (+8.7%) sectors.

With 21 of the 22 sectors monitored by Red Flag Alert reporting the level of 'significant' financial distress increasing in Q3 2024 versus the prior quarter, the latest data highlights how the heightened level of economic uncertainty is impacting businesses in almost every corner of the economy across the UK and pushing another 30,000 companies into financial distress.

Julie Palmer, Partner at Begbies Traynor, said: "With the end of the year now in sight, many British companies must be looking ahead to the finish line with a cautious degree of optimism for what 2025 has to offer after a difficult year. So far, there is no hiding from the fact that 2024 has been hard to navigate for companies and the final quarter looks no different as a high degree of uncertainty weighs on the UK economy.

"With over 630,000 firms now in significant financial distress, more than thirty per cent higher than this time last year, no section of the country's economy is immune from the legacy debt built up by many businesses during the pandemic.

"It is also apparent that the toxic effect of high inflation is still filtering down to businesses. The construction sector in particular continues to struggle with the legacy of high materials and labour inflation which have led to some high-profile insolvencies recently. This is a trend that I expect to continue, and I do not believe ISG will be the only major casualty in this sector with the domino effect likely to hit the sub-contractor community in due course.

"For some, the prospect of a change of government was viewed as a potential catalyst for a much-needed economic boost, but there are significant concerns surrounding what the next Budget might hold for the economy and the knock-on effect could be damaging for many businesses teetering on the edge of collapse, as it seems certain many will have to deal with higher employee related taxes.

Ric Traynor, Executive Chairman of Begbies Traynor, commented: "As we move into the final quarter of 2024, the decline we have seen in 'critical' financial distress is a welcome surprise after a challenging year. That said, it is too early to say if this is a trend that will continue into the autumn - traditionally a busy period for corporate insolvencies.

"While there are tentative signs of a recovery, uncertainty continues to loom over UK businesses. In response, many business leaders are holding their breath as they await clarity over what the forthcoming Budget will bring.

"So far, the mood music in the lead up to the Budget has led many business leaders to expect companies and investors to bear the brunt of changes to the tax regime.

"On top of this, the government's Employment Rights Bill could cause further pain, making it more difficult and more expensive to employ staff at a time when businesses are seeking flexibility through an uncertain period, whilst they grapple with an array of other issues.

"Companies must also contend with considerable geopolitical risks that could derail any domestic policy, including the escalating conflict in the Middle East, which could at the very least result in a spike in energy prices and bring back the spectre of high inflation. Added to this is the upcoming election in the US, which has the potential to impact both foreign and economic policy.

"Against this backdrop, the only certainty is uncertainty, and we know this is bad for both business and investment alike. Combine this high level of uncertainty with the expectation of higher business costs post the Autumn Budget and it is clear that the UK economy is far from being out of the woods."

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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 https://ir.begbies-traynorgroup.com/