HUNDREDS of city companies are now classed as being in ‘significant’ economic distress, according to a specialist business recovery company.

The latest figures from Begbies Traynor’s ‘Red Flag Alert’, which monitors the financial health of UK companies, show 644 Worcester businesses at risk of economic failure.

It represents a quarterly increase of 20.4 per cent and an annual rise of 3 per cent. 

Rising interest rates, debt, subdued consumer confidence, high energy costs, and wider economic uncertainty are putting considerable financial pressure on businesses across the region

The figures also highlighted particular sector hotspots, with the support services and professional services sectors seeing quarterly increases of 40.2 per cent and 40 per cent respectively in the number of companies in significant financial distress. 

Mark Malone, partner at Begbies Traynor in Worcester, said: "This latest data highlights how the debt storm, which has been building for years but had been held off by several measures to provide breathing space for companies, is likely to break. 

"Many businesses that had geared up on debt at historically low rates, and were only able to survive during the pandemic thanks to Government support, must now deal with a financial reality check as higher interest rates hit working capital for the foreseeable future.

“Taken together with stubbornly high inflation and weak consumer confidence, many of these businesses will inevitably head towards failure.

"While stabilising inflation and interest rates could start to slow the rising levels of distress in the economy, history dictates that this will take some time and insolvencies often peak long after a recovery has started.

"Unfortunately for many businesses, time is not on their side.”

Nationally, the latest Red Flag Alert research for Q3 2023 recorded 478,176 businesses in significant distress, up 8.7 per cent on the prior quarter, with almost 40,000 classed as being in ‘critical financial distress’.

The sectors driving the quarterly increase in critical distress were construction, real estate & property and support services, up 46 per cent, 38 per cent and 28 per cent respectively.