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(Sharecast News) - Begbies Traynor's latest 'Red Flag Alert' report, released on Friday, revealed a record number of UK businesses experiencing 'significant' financial distress, with 632,756 companies affected in the third quarter.
The AIM-traded business advisory specialist said that represented a 5.1% increase from the second quarter, and a 32.3% rise compared to the third quarter of 2023.
It highlighted rising distress across 21 of the 22 sectors monitored, with utilities up 19.3%, food and drug retailers up 10.4%, financial services up 9.94%, and bars and restaurants up 8.7%, all seeing particularly sharp increases.
While 'significant' distress was on the rise, the number of businesses in 'critical' financial distress fell by 23.2% quarter-on-quarter, down to 31,201 in the third quarter.
Sectors like hotels and accommodation, down 33.5%; construction, down 28.5%; and real estate and property services, down 26.5%; saw notable reductions in 'critical' distress.
However, the highest number of companies in 'critical' financial distress remained in the support services, construction, and real estate and property services sectors.
"As we move into the final quarter of 2024, the decline we have seen in 'critical' financial distress is a welcome surprise after a challenging year," said executive chairman Ric Traynor.
"That said, it is too early to say if this is a trend that will continue into the autumn - traditionally a busy period for corporate insolvencies.
"While there are tentative signs of a recovery, uncertainty continues to loom over UK businesses."
Traynor said that in response, many business leaders were "holding their breath" as they awaited clarity over what the forthcoming Budget will bring.
"So far, the mood music in the lead up to the Budget has led many business leaders to expect companies and investors to bear the brunt of changes to the tax regime.
"On top of this, the government's Employment Rights Bill could cause further pain, making it more difficult and more expensive to employ staff at a time when businesses are seeking flexibility through an uncertain period, whilst they grapple with an array of other issues.
"Companies must also contend with considerable geopolitical risks that could derail any domestic policy, including the escalating conflict in the Middle East, which could at the very least result in a spike in energy prices and bring back the spectre of high inflation."
Added to that was the upcoming election in the US, which Ric Traynor said had the potential to impact both foreign and economic policy.
"Against this backdrop, the only certainty is uncertainty, and we know this is bad for both business and investment alike.
"Combine this high level of uncertainty with the expectation of higher business costs post the Autumn Budget and it is clear that the UK economy is far from being out of the woods."
At 1057 BST, shares in Begbies Traynor Group were down 0.16% at 89.86p.
Reporting by Josh White for Sharecast.com.
