The UK economy has seen an “historic jump” in the number of businesses facing severe stress following Rachel Reeves’s budget according to analysts.
Less than three months after the Chancellor delivered a budget which raised the cost of doing business for millions, the new figures show businesses in distress “across almost every corner of the economy.”
The analysis by Begbies Traynor shows a worrying surge in the number of businesses in the UK entering “critical” financial distress in the final quarter of 2024.
In Q4 2024, “critical” financial distress rose by 50.2% to 46,853 companies, underscoring a deteriorating outlook.
Julie Palmer, partner at Begbies Traynor, said: “As we start a new calendar year, there is very little to be excited about. Across nearly every sector, there has been a unprecedent level of growth in the number of firms who are at serious risk of entering insolvency in the next 12 months.
“The fact that the distress is being felt across almost every corner of the economy highlights how difficult the outlook is for UK businesses right now.”
Ms Palmer issued a grim warning as she stated her belief that “in the absence of a reduced tax burden and a strong economic recovery, I expect the number of insolvencies to continue to rise in 2025.”
The Chancellor’s budget saw the national living wage increased and significant hikes in national insurance contributions combined with the lowering of the threshold at which payments begin to be made.
Ric Traynor, executive chairman of Begbies Traynor, said: “After a historic rise in ‘critical’ financial distress in Q4 2024, it’s clear that many distressed UK businesses are finding it almost impossible to navigate the challenges they face as we start 2025.
“For many businesses which were already dealing with weak consumer confidence and higher borrowing costs, the increase in national insurance contributions and the national minimum wage, announced at the last Budget, could be the last straw, particularly in labour-intensive sectors like retail and hospitality, who typically operate on razor thin margins.
“For many of these companies, the situation is dire, and this additional burden will almost certainly result in business leaders taking the decision to, at best, reduce headcount or, worse, wind down their operations in the face of insurmountable challenges.”
Since the budget, the mood has further soured as the a lack of investor confidence in the market so the cost of government debt rise, reducing the amount of money available for the Treasury to invest in public services.
Earlier this week, Ex-Bank of England chief economist Andy Haldane said the UK is at risk of entering an economic “doom loop” if spending continues to be cut.
Mr Haldance predicted that the Office for Budget Responsibility’s March forecast could be the catalyst for the UK’s spending plans to be slashed.
