Friday 28 January 2022 9:41 am

Businesses brace for insolvency storm as Covid aid winds down

London is the eye of the storm for struggling UK businesses, with over a quarter of the distressed companies, some 159,500, based in the UK capital.

Over half a million UK businesses are struggling financially amid soaring inflation and the rollback of government Covid-19 support.

A total of 589,168 businesses reported financial distress in the final quarter of 2021, a five per cent jump compared to the previous three months, data from Begbies Traynor has revealed. The insolvency specialists also revealed that County Court Judgements have risen by 106 per cent, an early warning sign that a wave of insolvencies is coming as creditors use the courts to recover debts.

Julie Palmer, a partner at Begbies Traynor, said “businesses that have bravely battled through the pandemic could now start to fail as the pressures they face become too much.”

Palmer said inflation is now “the greatest threat to the economy” with the true rate potentially running far beyond the official 5.4 per cent rate and already far above the Bank of England’s target of two per cent.

“The lag effect of the economic fallout from Covid, plus significantly higher inflation, has created a perfect economic storm for many companies, particularly the UK’s SME sector, which will undoubtedly drive insolvency rates even higher,” she continued, noting that as furlough payments, tax relief and an eviction suspension wind down many struggling businesses will be unable to cope.

London is the eye of the storm for struggling businesses, with over a quarter of the distressed companies, some 159,500, based in the UK capital. Support services, construction and real estate are amongst the hardest hit sectors.

The situation is even worse for companies already teetering on the brink. Begbies Traynor data revealed that critical financial distress was up seven per cent year-on-year in the final three months of 2021.