More firms in the travel and tourism sector have been rated as facing “critical” financial distress, latest research reveals.

 

The 39% year-on-year increase came amid the current climate of volatile consumer spending, global economic turbulence and rising taxes on business.

 

The “concerning” increases of businesses facing financial worries in consumer facing sectors include bars and restaurants (up 41.7%), travel and tourism (up 39%) and general retailers (up 17.8%), according to advisory firm Begbies Traynor.

 

Of the 22 sectors covered by the firm’s latest Red Flag Alert, all experienced an increase in ’critical’ financial distress against the equivalent three months last year as economic pressures impacted every corner of the economy.

 

Begbies Traynor partner Julie Palmer said: “Financial distress has intensified over the past 12 months in every corner of the economy. This means businesses across the UK are facing significant headwinds and many will have to review where they can tighten their budgets or restructure to give themselves more stability in the immediate future.

 

“This time last year, there was a degree of optimism amongst business leaders who were hoping to see a shift in fortunes in the second half of the year, but fast-forward 12 months and confidence is in short supply.

 

“Households are still grappling with their finances, and this is keeping consumer confidence volatile. The knock-on effect of this is clear to see in the consumer-facing sectors where margins are thin, growth is hard to come by, and the impact of higher employee costs is pushing many businesses to the brink of collapse.

 

“So, it is of no surprise to me that while larger pub groups might be performing well, by squeezing out extra efficiencies to counteract onerous price rises, many independent players won’t have the scale to withstand the pressures of this environment for another 12 months if nothing improves.

 

“In the face of these headwinds, a large proportion of the 50,000 businesses currently in ’critical’ financial distress need to urgently investigate their options if they are going to weather the storm. With no end in sight to the current economic malaise, I fear the financial burdens companies are enduring at present are simply too high for many not to avoid collapse.”

 

The firm’s executive chairman Ric Traynor added: “The sharp rise in critical distress underscores just how tough the economic environment is for UK businesses and it’s abundantly clear that tens of thousands of firms are struggling to stay afloat.

 

“Small and medium sized businesses across the UK are being put under immense strain by the recent increases to employer’s NI as well as the increase to the national minimum wage. With limited financial headroom to absorb rising costs, many businesses are now reaching a tipping point.

 

“The result of this is reflected in the latest figures from Red Flag Alert. Critical financial distress is rising across every sector and trading conditions remain very difficult. Alongside this, policy decisions continue to add pressure, so there is a very real risk that more of these critically distressed businesses will move towards formal insolvency over the next 12 months.

 

“As we enter the second half of the year, the wider economy continues to show signs of strain. GDP fell in May after positive growth at the start of the year, inflation remains stubborn and unemployment has risen to a four year high. 

 

“Taken together with geopolitical uncertainty, tariffs, dampening business confidence and continued financial pressures, UK businesses have many difficult decisions to make in the coming months.”