Record surge in UK businesses facing severe financial distress as costs climb

The number of UK businesses in critical financial trouble jumped by a record 50.2 per cent quarter-on-quarter to 46,853 in the final three months of 2024, according to new data from insolvency specialist Begbies Traynor

Construction and consumer-facing companies are bearing the brunt of this distress, heightening fears of widespread insolvencies in the year ahead.

Begbies Traynor’s latest “red flag” alert highlights that 6,830 construction firms are showing signs of critical stress. Consumer sectors have also been hit hard, with an eye-catching 76 per cent spike in severe financial difficulty for leisure operators and a 48 per cent rise among general retailers. High-profile collapses of names such as Homebase, Carpetright and The Body Shop have underlined the pressure on retail businesses and prompted thousands of job losses.

Ric Traynor, executive chairman of Begbies Traynor, warned that “many distressed UK businesses are finding it almost impossible to navigate the challenges they face as we start 2025”. He pointed to the tax and wage increases introduced in the last budget, including higher employers’ national insurance contributions and a boost to the national minimum wage, as potential tipping points for firms struggling with weak consumer confidence and hefty borrowing costs.

The research examined factors such as county court judgments against businesses and winding-up petitions. Julie Palmer, partner at Begbies Traynor, noted: “Across nearly every sector there has been an unprecedented level of growth in the number of firms who are at serious risk of entering insolvency in the next 12 months.” She added that consumer-facing businesses, in particular, are feeling the strain of rising operational costs, which, after a disappointing Christmas season, could push many “over the edge”.

Meanwhile, official Insolvency Service figures for 2024 showed a slight fall of 5 per cent in the total number of corporate collapses, to 23,872. However, elevated interest rates and broader economic pressures have driven personal insolvencies up by 14 per cent over the year, from 103,434 to 117,94. Tim Cooper, president of R3, the insolvency and restructuring trade body, said this points to “a real and serious issue” with consumer debt.