More than 123,000 British businesses, with a combined £58bn of debts, are experiencing significant or critical financial distress, according to the latest quarterly research.
The report by insolvency group Begbies Traynor, found that the companies in debt owe more than £57.5bn to creditors, suppliers and service providers, with 50,000 of those likely to by hit by the latest government cuts.
The quarterly Red Flag Alert report comes as the government is preparing to announce the results of the Comprehensive Spending Review, in which it is expected to reveal a host of spending cuts which will hit hard those businesses most dependent on public spending.
Ric Traynor, executive chairman of Begbies Traynor Group, said: “It will not be until the government’s Comprehensive Spending Review in a week’s time that we will know for certain the allocation of all of the anticipated £83 billion of spending cuts.
“With confidence in the construction sector falling to an eighteen month low, recruitment activity at its slowest for almost a year and a strong increase in distress in the advertising sector, there is a growing risk that even if the wider UK avoids a double-dip recession, public-sector dependent industries face higher levels of financial distress.”
According to the Red Flag Alert statistics, the sectors most likely to be most impacted are already starting to shows definite signs of financial distress, with 50,299 firms which cover construction, IT, recruitment, advertising and business services struggling.
Industries such as retail, leisure and travel are also expected to undergo financial difficulties and are predicted to see a slowdown in their recovery.
“We believe that there will be a prolonged period of growth in business distress, as SMEs feel the full impact of the gradual unwinding of government support measures, combined with public sector spending cuts and deteriorating business and consumer confidence,” added Traynor.
© Crimson Business Ltd. 2010