U.K. Sees Record Jump in Firms in Significant Financial Distress

(Bloomberg) --

The number of U.K. businesses in significant financial distress jumped the most in at least seven years last quarter, with firms across all sectors seeing their situation deteriorate.

There are 723,000 companies facing serious problems, according to research by intelligence provider Begbies Traynor published Thursday. That’s a 15% increase from the end of last year, and the biggest quarterly increase since it began publishing the data in 2014. From a year ago, the number has climbed 42%.

The worsening of companies’ balance sheets comes as a worrying sign for the U.K.’s recovery prospects even as the economy begins to open up following months of lockdown. Despite billions in government support, many firms are leaving restrictions with heavy debts that could leave them vulnerable when help is withdrawn.

Financial distress in transport and logistics, real estate and financial services all surged by at least 50%, despite strong demand for their services through the latest restrictions, the analysis found. Regionally, Northern Ireland and the Northwest of England saw the biggest deterioration, but London’s reliance on both the leisure and hospitality sector and finance firms also left it vulnerable, Begbies Traynor said.

It defines significant distress as businesses with minor county court judgments filed against them or those identified by a sustained or marked deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth.

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