The number of UK firms experiencing financial distress soared in the second quarter

 
Courtney Goldsmith
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The red flag report found a big increase in firms experiencing "significant" distress in the second quarter (Source: Getty)

Slowing momentum in the UK's economy is heaping financial pressure onto businesses and raising doubts about whether they will be able to cope with the upcoming headwinds caused by Brexit, new research reveals.

The second quarter of 2017 had the largest annual increase in companies experiencing "significant" financial distress in three years, a report published today by insolvency firm Begbies Traynor found.

A 25 per cent increase from the previous year brought the number of UK firms showing red flags to 329,834.

Read more: Five charts showing what we learned about the British economy this month

“Our red flag research shows that a recent loss of momentum in the economy is putting increased financial pressure on UK businesses, with SMEs [small and medium-sized enterprises] bearing the brunt of this rising distress, as businesses contend with uncertainty over Brexit negotiations and an inconclusive election result, alongside rising costs," said Ric Traynor, executive chairman of Begbies Traynor.

The number of SMEs that showed significant disress increased by 26 per cent while large companies saw distress rise by just 12 per cent year-on-year.

Traynor warned the increased financial distress points to a slowdown in business investment.

Julie Palmer, partner at the firm, said the deterioration in the property and construction sectors was particularly concerning, and the research showed that the sectors most reliant on consumer spending, including leisure, automotive and restaurant firms, were also hit hard.

Read more: More than a quarter of construction firms at risk of insolvency

“As the second half of 2017 begins, it’s worrying that so many businesses, particularly SMEs, are facing such instability, Palmer said.

These businesses, which are the backbone of our economy, need to be as robust as possible to fuel the UK’s growth post-Brexit, yet these figures indicate that many will struggle to fund increases in working capital and invest in growth.

Begbies Traynor's benchmark red flag report, which measures the financial health of UK companies, has been running since 2004. Due to a change in stress indicators measured, comparable data only runs back to the third quarter of 2012.

Read more: UK insolvencies have fallen to a 17-year low

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