The Business Distress Index for Q3 2024 (July to September) from Real Business Rescue, corporate insolvency and business rescue specialists, shows London on the top of the leaderboard as the region with the highest number of businesses in financial distress.
This was a volatile trading period as Labour’s election win took place in early July and the date for the Autumn Budget was announced shortly after. Consumers, businesses and investors alike naturally reined in spending and held off on making major financial decisions during the three-month wait for Labour’s first major fiscal statement.
While limited information was available about the measures in store at the Autumn Budget, it was clear that a major tax shake-up was on the horizon to clear up legacy debt and raise essential funds for public services.
This knocked investor appetite and consumer spending, further compounded by high inflation, the rising cost of living, and increased input costs.
Chris Bristow, a company liquidation and business rescue expert at Real Business Rescue, dives into the latest UK insolvency statistics for Q3 2024.
Where does London sit on the business distress leaderboard?
Research from Real Business Rescue shows 632,756 UK businesses in significant financial distress during Q3 2024, a 5% increase from the previous quarter (601,950) and 32.3% higher than in Q3 2023 (478,176).
London is the host city for around one-third of the UK business population, along with the South East. According to the Office for National Statistics, this is equivalent to 1,370 businesses per 10,000 resident adults in London. London boasts numerous globally recognised business districts, making it a magnet for new and veteran businesses.
The Business Distress Index shows 185,494 businesses in significant financial distress in London during Q3 2024, a 35% increase from 137,515 in Q3 2023.
We look at the sectors in significant financial distress to better understand the factors increasing the financial burden on businesses.
What sectors are in significant financial distress?
The top five sectors in significant financial distress include support services, construction, real estate and property, professional services and general retailers. Retail businesses experienced the highest percentage increase at 38% compared to Q3 2023.
The retail industry weathered a turbulent journey throughout Q3 2024 as a raft of changes directly fuelled low consumer sentiment levels, such as:
Rising energy bills – While the energy price cap was reduced for Q3, financial security for domestic consumers was short-lived as prices bounced back up in Q4. The price cap for Q4 was announced in late August which gave consumers ample time to plan for the rise in energy bills and adjust budgets accordingly.
Cost of living – High inflation contributed to the rising cost of goods and a higher cost of living, which meant reduced disposable income for households and a possible decline in living standards. As consumers scaled back on non-essential spending, retailers experienced a dip in consumer demand.
Pricing pressures – As high inflation and supply chain demand increases the cost of materials, retailers experiencing pricing pressures must decide whether to absorb the cost or raise their prices.
Autumn Budget anticipation – In anticipation of tax reforms due to be announced in the Autumn Budget, retailers awaited news of whether the fiscal statement would be generous to retailers.
Labour’s manifesto touched upon a reform of the current business rates structure to level the playing field between high street and online giants. While these changes were anticipated, the finer details, such as the wider tax implications and the enforcement date were set to be announced at the Autumn Budget in Q4.
Demand for digital – As digitally-powered shopping experiences grow in appeal to consumers, the retail industry is embracing digitalisation at a rapid pace, raising the benchmark and therefore, consumer expectations.
Retailers must mould their brick-and-mortar shopping experiences to integrate technology or develop their existing strategy to embrace an omnichannel approach.
While the Business Distress Index shows increasing levels of financial distress across key UK regions, including London, retail volumes are trending upwards as we head into Q4, the beginning of the Golden Quarter which is often a profitable time for UK retailers.