New data from Red Flag Alert and the Insolvency Service show that there are now 484,000 businesses classified as ‘in significant distress’ (16% of all the UK businesses) and that underlying insolvencies are up by 6.3%.
Alongside these figures the number of businesses in critical distress, often those which go to formal insolvency, rose by 17% year on year.
The property sector has been hit hard which is giving concern that the UK could be on the brink of an economic slowdown.
This is the second quarter running that the property sector has been the hardest hit. It saw a 13% year on year increase in the number of companies, mostly involved in buying, selling and letting, classed as in significant distress rise by 16%.
Other sectors which have been affected significantly are in construction, financial services and leisure.
The construction industry, which is often used as a ‘bellweather’ of the economy saw a rise of 10% year on year, up from 11,813 (Q1 2018) to 13,018 (Q1 2019).
The financial sector saw arise of 5% year on year, but this could be down to activity stalling with the uncertainty of the final Brexit outcome. Indeed, it is expected that it will stabilise in the future as the sector has sound fundamentals.
The leisure sector, particularly Hotels and Accommodation, has suffered a rise of 9% year on year. This sector has had two factors which have contributed to this rise, having to deal with a reduced labour supply as the number of EU workers falls and the cost of a 5% increase in the national living wage.
Meanwhile, in figures released today (30th April 2019), the Insolvency Service shows that there were 4,187 total underlying company insolvencies in Q1 2019; this is 6.3% higher than in Q4 2018. Compared to the same quarter last year, this was an increase of 5.1%.
This is the second highest underlying level of insolvencies in any quarter since Q1 2014.
This rise was driven by increases in Company Voluntary Liquidations which increased by 6.2% compared to Q4 2018 and Administrations which were up 21.8%. Company Voluntary Arrangements also increased by 43.1%. Compulsory liquidations fell in Q1 2019 by 2.7%.
The report also shows that the liquidation rate has increased slightly for the first quarter of 2019. This means that the likelihood of a company going into liquidation has increased up to 1 in every 238 companies.
The figures also confirm the Red Flag Data that the construction industry is in a dire state with 3,013 insolvencies up 0.6% from the 12 months ending Q4 2019.
Rick Smith, Managing Director at Forbes Burton said:
“The impact of the uncertainty around Brexit is really starting to take hold now and we may see even more increases in the number of businesses facing problems in the future.
“However, the UK economy is generally in good shape and we are seeing a record number of people in employment. Hopefully the government will be able to provide greater certainty around Brexit over the next couple of months which should increase confidence.”
Also, responding to the announcement that the number of businesses that became insolvent in the first three months of 2019 rose by 6.3% compared to the previous quarter, Federation of Small Businesses (FSB) National Chairman Mike Cherry, said:
“These latest figures show the immense strain that small businesses are currently under with rising employment costs, unfair business rates as well as significant uncertainty as a result of the Brexit process.
“Both the total number of new company insolvencies as well as underlying total insolvencies have reached their highest levels since 2014, which highlights the ongoing turbulence that small firms are now up against.”
He added: “It’s good to see however that there was a fall of 8.9% in the number of self-employed individuals who suffered from bankruptcies in Q4 of 2018, but this remains higher than the same period in the year before.
“The self-employed community, who are 4.8 million-strong, are still denied basic support in too many areas.
“FSB’s own research has found that small businesses are spending around 15% more on the likes of taxes, levies and employment obligations than they were six years ago.
“Ongoing uncertainty is a critical issue for small firms and the self-employed, and central to this is the unknown nature of what the UK’s relationship will look like with the EU.
“SMEs are under the cosh more than ever and it’s time that action is now taken to prevent more businesses going insolvent in the future.”
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