A “worrying surge” in the number of businesses entering critical financial distress in the final quarter of 2024 has been disclosed by insolvency experts Begbies Traynor.
The number of travel and tourism businesses in this category rose quarter-on-quarter by 36.7%.
Overall ‘critical’ financial distress rose by 50.2% to 46,853 companies, underscoring a deteriorating outlook, the ‘red flag alert’ report said.
The total number of UK businesses considered to be in ‘significant’ financial distress increased by 3.5% on the quarter to 654,765.
However, ‘significant’financial distress among travel and tourism businesses fell quarter-on-quarter by 3.8%.
The report covers 22 sectors and found that all but one saw a “noticeable increase” in the number of businesses in critical financial distress.
The growth in distress was “particularly concerning” in consumer facing sectors with hotels and accommodation up 83.63% and general retailers by 47.6%.
Begbies Traynor partner Julie Palmer, said: “As we start a new calendar year, there is very little to be excited about. Across nearly every sector, there has been a unprecedented level of growth in the number of firms who are at serious risk of entering insolvency in the next 12 months.
“The fact that the distress is being felt across almost every corner of the economy highlights how difficult the outlook is for UK businesses right now.
“After a disappointing Christmas, consumer-facing industries, in particular, are feeling the strain, with rising operational costs and higher wages adding to an already difficult situation.
“With many such businesses already operating on thin margins, I fear the current situation will undoubtedly push some over the edge.
“Indeed, at a time when consumer confidence is so volatile and borrowing costs look likely to be structurally higher for the foreseeable future, the situation feels very precarious.
“Sadly, this has only been exacerbated by the tax rises and increase in national minimum wage levied on businesses during the October 2024 UK budget which means the financial strain on businesses will only increase later this year.
“Even at this very early stage, the outlook for the rest of 2025 is uncertain, at best. Many companies are clearly struggling to adapt to the compounding challenges they face and there is no easy fix which will be very unsettling for businesses who are struggling to tread water already.
“So, in the absence of a reduced tax burden and a strong economic recovery, I expect the number of insolvencies to continue to rise in 2025 as firms struggle to cope with a perfect storm of rising costs, financial instability and fluctuating market conditions.”