A rising number of firms in the travel and tourism sector have been identified as suffering from “significant” financial stress in the second quarter of the year.
An increase of more than 20% over there first three months of 2024 was highlighted by restructuring company Begbies Traynor.
The total number of firms in “significant” financial distress rose by 8.5% to 601,950 in the three months, up from 554,554 in the first quarter, driven by companies operating in travel and tourism, hotels and accommodation and bars and restaurants.
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“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,” the ‘red flag alert’ research found.
Begbies Traynor partner Julie Palmer 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.”
She added: “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.”
Executive chairman Ric Traynor said: “We are a little over halfwaythrough 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 thi 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.”