According to data from the UK insolvency company, Begbies Traynor, the number of businesses in “significant” financial distress rose by 15,000 to 481,000. Within that total, there was a 25% increase of businesses classified as in “critical” distress in Q4 2018 as compared with the previous year, which amounted to 2,183 companies.
The sector that took the most significant hit was in real estate and property, with a 7% (3,134) rise in the companies that saw significant distress between Q3 2018 and Q4 2018. This was in addition to a 9% year-on-year increase of 4,013 extra businesses. Also discovered from the data is that there were thousands of companies in support services (4,245, a 4% increase), that fell into significant financial distress in Q4 2018, including construction (2,599, a 4% increase), and professional services (1,027, a 4% increase). The retail sector only experienced a 2% increase, representing and additional 529 businesses, however Q4 2018 is typically strong cash trading period in Q4 for many retailers and thus a seasonal uplift in sales together with heavy discounting may have just delayed the underlying issue. Any true indication of real problems would be much more likely to be shown in Q1 2019. This is in addition to the pressure of the trend of more customers turning to online shopping as opposed to in-store.
The uncertainty of Brexit has had a huge effect on investment and purchasing decisions. There are examples of larger financial groups already moving their headquarters away from London, however for other scenarios Brexit may just be a convenient and easy excuse not to make a purchase or investment because companies are under more pressure and cash flow is tight as the data from Begbies demonstrates.
It certainly appears that a trend is happening and with larger more public company failures, such as Patisserie Valerie and FlyBMI, the effect of individual job losses and decreases in consumer spending the number of businesses failing in 2019 is only set to increase.
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