More U.K. Businesses Are Facing Distress on Economic Uncertainty

(Bloomberg) -- As talks on a Brexit deal fumble on, the uncertainty it has brought is hurting U.K. property firms and the financial services sector.

The number of companies classed as being in “critical distress,” often a precursor to insolvency, rose 17 percent in the first quarter from a year earlier, data compiled by financial adviser Begbies Traynor Group Plc show. It comes even as government figures suggest the economy picked up a little momentum in the first quarter, with GDP unexpectedly expanding in February for a second straight month.

"Many U.K. businesses are currently in limbo and deferring major investment decisions. This, combined with consumers holding back on big ticket purchases, has resulted in increasing significant distress across many sectors,” Julie Palmer, a partner at Begbies Traynor, said in the report. “Capital intensive sectors - such as construction and property - are suffering.”

Brexit impacted the U.K.’s financial services sector as the uncertainty caused some companies to put activities on hold until the final outcome is known, the report said. Begbies Traynor expects stability to return to the industry after a deal with the European Union is signed off as “the fundamentals of this sector remain reasonably good.”

The real estate industry was the hardest hit for the second quarter in a row, with more than 36,000 property brokers facing significant distress, an increase of 16 percent from the same period a year ago. Construction has also suffered, with a 5 percent increase in the number of commercial and domestic building firms affected by the metric.

Other takeaways from the report:

  • More than 480,000 businesses in the U.K. faced significant distress at the end of March, the equivalent of 14 percent of all active businesses, which may lead to concerns that the U.K. is facing a broader economic slowdown.
  • “This data shows that this economic malaise is spreading to the U.K.’s dominant services sector,” Palmer said
  • Leisure and hotels industry are being affected by lowest net European Union migration to the U.K. since 2009

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