The degree of economic threat is small enterprises cost of living crisis and rapid growth inflation was exposed by insolvency specialist Begbies Trainor hours after Bank of Englanda stark warning of a long and deep recession.
Business recovery consultancy Red Flag Alert found that nearly 2,000 companies were in dire financial straits by the end of the second quarter, a 37% year-on-year increase, as a sharp rise in inflation hit harder. in the real sector of the economy significantly exceeds the official figures.
More than half a million companies also found themselves in a difficult financial situation. Higher wages require from workers coincides with a shaky case and consumer confidence leave companies in an “extremely difficult economic situation”, Begbies said, while the government-backed repayment Corona virus infection covid support loans add to the problem.
“After emerging from the pandemic, many companies were hoping for an economic boom, but that simply fell through as supply chain problems and the invasion of Ukraine took their toll, driving up the cost of raw materials and energy and reducing both business and consumer confidence. ” said Julie Palmer, partner at Begbies
“I am particularly concerned about those small businesses in energy-intensive sectors such as manufacturing, as some of them may simply become unviable. Without a cap on energy prices, business energy rates have at least trebled and many will be far worse off.”
The Red Flag System looks at data on district court judgments on debt judgments issued against firms that often provide an early warning of insolvency. More than 46,000 rulings were made in the first six months of 2022, a 5% increase on the first quarter, partly due to backlogs related to the Covid lockdown. For the whole of 2021, there were a little more than 59 thousand of them.
The sectors with the most distressed businesses – defined as District Court judgments of more than £5,000 – are construction, support services and property. The list is extensive and also covers general retail, automotive and bars and restaurants. The Red Flag Alert has been published by Begbies since 2004.
Meanwhile, Bank of England Governor Andrew Bailey dismissed criticism that he was too late to raise interest rates. He told BBC Radio Four’s Today programme: “If you go back two years… given the situation we were facing at the time in the context of Covid, in the context of the labor market, the idea that we would have tightened monetary policy. .. I don’t remember many people saying that.”