North East businesses see rise in financial distress as cost of living crisis continues to bite

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Businesses in the North East and across much of the UK are fighting for survival amid persistent inflation and the diminishing prospect of an imminent cut to interest rates. The latest Red Flag Alert data from leading independent business rescue and recovery specialist Begbies Traynor shows that the region once again saw an increase in early signs of financial distress in Q1 of 2024.

In the first quarter of this year, 32.6% more businesses in the North East experienced an increase in ‘significant’ or early-stage financial distress compared with Q1 2023. This type of distress (which refers to businesses showing deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth) also saw a rise in the region of 7.1% since the previous quarter. Over 10,250 North East businesses were impacted by significant distress in the first three months of 2024.

These figures are above the national average which saw 30.8% of businesses across the UK experiencing a year-on-year increase in early distress, representing more than 554,550 businesses. There was a 2.7% increase in UK-wide levels of significant distress quarter-on-quarter.

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Looking at more advanced or ‘critical’ distress, there was a 24.8% increase among North East businesses compared with the same period the previous year, while the region saw a 7.2% fall since the previous quarter. This type of severe distress affected 776 businesses in the region. Across the UK, in the first three months of 2024 there was a 20.1% rise in critical distress since Q1 2023, and a 15.4% fall since Q4 2023, with just over 40,170 businesses affected.

Andrew Little and Gillian Sayburn of Begbies Traynor in NewcastleAndrew Little and Gillian Sayburn of Begbies Traynor in Newcastle
Andrew Little and Gillian Sayburn of Begbies Traynor in Newcastle

In the North East, of the 22 sectors analysed, nine saw double-digit rises in significant distress in the first three months of the year compared with the final quarter of 2023. The worst affected were food and beverages with a rise of 36.7%; bars and restaurants, up by 31.9%; food and drug retailers, up by 29.8%; utilities, up by 29.2%; industrial transport and logistics, up by 27.2%; and sports and health clubs, up by 20.6%. The only sectors in the North East to see quarter-on-quarter falls in early distress were real estate and property services which decreased by 8.7%; financial services, down by 6.4%; travel and tourism, down by 3.6%; telecoms, down by 1.5%; and automotive, down by 1%.

Andrew Little, partner for Begbies Traynor in the North East, said: “With inflation slow to fall and consumers feeling the pinch, many businesses both here and across the UK are struggling in the face of falling discretionary spend. Added to that, the increasingly uncertain global geo-political situation makes future prospects far from certain.”

Partner Gillian Sayburn adds: “For many, the road to economic recovery still feels a long way away and a return of confidence among both businesses and consumers is not yet evident. In such a difficult economic environment, businesses should continue to monitor their finances closely and turn to insolvency professionals for expert advice at the first signs of trouble when more tools will be available to prevent problems from spiralling out of control.”

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