Construction Tops List of Sectors in Critical Financial Distress

CONSTRUCTION tops the list of UK sectors with the most firms in critical financial distress, in the last three months of 2024 (Q4).

The latest ‘red flag alert’ from business recovery specialist, Begbies Traynor, reports there was a surge in the number of UK businesses entering ‘critical’ financial distress, which rose by 50.2% to 46,853 companies. It suggests these businesses are under huge risk of insolvency.

Considered a key bellwether sector, construction saw a 58% growth in firms categorised as in critical financial distress. Together with the real estate and property services, the two sectors account for nearly 30% of all the businesses in the critical group.

Begbies says the growth in distress in consumer facing sectors such as hospitality, hotels, leisure and retail is “particularly concerning”.

Difficult Outlook

Julie Palmer, Partner at Begbies Traynor, said: “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.

“After a disappointing Christmas, consumer-facing industries, in particular, are feeling the strain, with rising operational costs and higher wages adding to an already difficult situation. With many such businesses already operating on thin margins, I fear the current situation will undoubtedly push some over the edge.

“Even at this very early stage, the outlook for the rest of 2025 is uncertain, at best. Many companies are clearly struggling to adapt to the compounding challenges they face and there is no easy fix which will be very unsettling for businesses who are struggling to tread water already.

“So, 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 as firms struggle to cope with a perfect storm of rising costs, financial instability and fluctuating market conditions.”

Significant Distress

Businesses in the category of ‘significant’ distress rose by more than a fifth in Q4,24 compared to Q4,23.

Here too, construction tops the list. At the end of 2024, the sectors experiencing the highest numbers of businesses in ‘significant’ financial distress include the Construction (97,603), Support Services (90,375), and Real Estate & Property Services sectors (75,394).

It builds a picture of a worsening UK economy as we start the new year.

And the quarterly findings are in line with the picture the Begbies report builds of another overall challenging year. ‘Significant’ distress was felt across every corner of the economy as each of the 22 sectors monitored by Red Flag Alert experienced an increase of more than 15% over the year.

Ric Traynor, Executive Chairman of Begbies Traynor, adds: “With the possibility of an emergency tax raising Spring Budget still not off the table, combined with likely increases in tariffs from the new US administration, the outlook for the UK is very uncertain.

“So, I fear 2025 could end up being a watershed moment where thousands of UK businesses ‘call time’ after struggling to survive for years.”

Top 10 Sector Ranking – Critical Financial Distress

Top 10 Sector Ranking – Significant Financial Distress

Critical Distress by Region

Significant Distress by Region

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