Businesses in Yorkshire and across the country are being warned to expect severe financial difficulties as record-high inflation and a sharp rise in energy costs are set to compound the recession and worsen economic prospects for the year ahead, with smaller businesses at the highest risk of financial collapse.
The latest Red Flag Alert data, published by leading independent business rescue and recovery specialist Begbies Traynor, reveals that business distress had flatlined in the final quarter of 2022, with buoyant pre-Christmas retail sales, the World Cup and government support for energy costs helping to boost retail sales and the wider economy.
Some 35,000 Yorkshire companies suffered early stage financial problems, such as having county court judgements of less than £5,000 served against them, in Q4 2022, the same as in the previous quarter and 2% up on the final quarter of 2021.
Nationally, more than 610,000 businesses suffered ‘significant’ distress in Q4 2022, equal to Q3 2022.
Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said: “Unfortunately, despite some pre-Christmas consumer optimism, Britain is now mired in what looks certain to be at least a year-long slump, driven by rising prices and escalating business costs that are putting the brakes on economic activity.
“The government’s plan to cut support to most businesses for their energy bills from April will compound the reined-in consumer spending and ensuing slowdown in demand that is now very likely to cause widespread and serious financial problems, particularly for smaller businesses, across Yorkshire and beyond.”
Sectors that have been worst hit by financial distress and have the largest number of firms in financial difficulty include construction, real estate and property services, and support services, each of which account for almost 5,000 of the 35,000 distressed businesses in Yorkshire.
Industries which saw significant increases in distress since Q3 2022 include manufacturing (a 9% rise) and printing and packaging (a 15% rise).
Julian added: “These are perilous times for small firms and it is essential for owner managers to be alert to financial problems, and seek professional help sooner rather than later if they begin to struggle, to avoid problems escalating.”