Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

UK firms ‘could be pushed over edge’ after record rise in financial distress

Consumer-facing sectors such as hotels, leisure and retailers have particularly been under pressure, advisory firm Begbies Traynor said.

Anna Wise
Friday 24 January 2025 06:11 EST
The Insolvency Service reported a jump in liquidations (Alamy/PA)
The Insolvency Service reported a jump in liquidations (Alamy/PA)

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

An insolvency expert has raised fears that UK businesses will be pushed “over the edge” after new figures showed a record-breaking rise in the number of firms at serious risk of collapse.

Consumer-facing sectors such as hotels, leisure and retailers have particularly been under pressure, advisory firm Begbies Traynor said.

Its latest Red Flag Alert report showed that about 46,850 businesses were in “critical” financial distress over the final three months of 2024.

This was a 50% increase on the number of firms on the brink of collapse over the previous three-month period.

With many such businesses already operating on thin margins, I fear the current situation will undoubtedly push some over the edge

Julie Palmer, partner at Begbies Traynor

Julie Parmer, a partner at Begbies, said this increase, across nearly every sector, represented an “unprecedented level of growth in the number of firms who are at serious risk of entering insolvency in the next 12 months”.

The growth in distress was particularly sharp among hotels and accommodation businesses, which jumped by nearly 84%, leisure firms, up by 76%, and retailers, up by nearly 50%.

“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,” Ms Palmer said.

“With many such businesses already operating on thin margins, I fear the current situation will undoubtedly push some over the edge.”

At the end of 2024, the construction sector saw the highest number of businesses in both “critical” and “significant” financial distress – with more than 100,000 in total.

Housebuilders and developers have consistently flagged weaker demand in the property market, higher building costs, and more cautious spending as factors creating much tougher conditions.

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

Ric Traynor, Begbies Traynor

Ric Traynor, Begbies’ executive chairman, said many businesses were facing higher employer national insurance contributions this year, and would be increasing staff wages in line with the higher national minimum wage.

These costs “could be the last straw, particularly in labour-intensive sectors like retail and hospitality, who typically operate on razor thin margins,” he warned.

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

The Government has defended the policy measures announced in the autumn Budget, saying they will help it to plug a “black hole” in the country’s finances and invest in different industries to get the economy growing.

At the end of 2024, there were some 655,000 firms in “significant” financial distress, up more than a fifth on the same period in 2023, the report found.

The data was released alongside a separate new survey from S&P Global, which showed business confidence worsened this month amid warnings of job cuts and rising inflation.

Business activity among private firms nonetheless rose this month, according to preliminary data.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in