There has been a surge in the number of businesses in serious financial distress, prompting a new warning that the UK economy has hit ‘rock bottom’.
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A report by financial services company Begbies Traynor found a 24% year-on-year increase in the number of companies in ‘critical’ financial distress during the last three months of 2011. This includes insolvency, court action for debt or winding-up petitions.
The findings come a week before official figures showing whether or not the UK has slipped back into negative growth are published. Chancellor George Osborne has already indicated that last year’s fourth quarter GDP may not be positive.
Begbies Traynor’s ‘Red Flag Alert’, published on Thursday, says the financial outlook is poor across almost every sector and region. Professional services reported the greatest increase in financial distress during the last quarter of 2011, up 61% on the previous year.
This was followed by the travel and tourism sector, where finance problems were up 56%, prompting the report authors to predict there will be at least one failure of a ‘household’ name travel company during the next quarter.
Financial distress in the retail sector was also acute, with a rise of 26%. A series of household names have gone into administration recently, including Peacocks, Barratts and Blacks Leisure.
But the report warns of even gloomier times ahead, particularly for small and mid-size retailers that are suffering disproportionally because of fierce competition from online discounters such as Amazon.
Julie Palmer, partner at Begbies Traynor, told Sky News that 2012 would be a “really tough year for UK business.”
She added: “We think the UK is entering the real teeth of the recession at the moment and that those teeth are going to start biting really hard in the coming 12 months.”
Companies in regions that have so far seemed recession proof, such as the South East and London, are now starting to face severe financial issues, according to the report, further indicating that the UK may be progressing to a deeper stage of the recessionary cycle.
Ric Traynor, executive chairman of Begbies Traynor Group, said: “Trends evident in the Red Flag Alert demonstrate that we are likely to be approaching a crucial period for businesses large and small.”
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