Begbies Traynor’s Red Flag Alert research for the first quarter of 2018, which monitors the financial health of UK companies, found that 60,541 construction businesses experienced ‘significant’ financial distress at the end of March 2018, up 33% compared with when Article 50 was triggered on March 29 last year (Q1 2017: 358,943).

The picture is even worse for companies in the support services sector, with a 40% rise in the number in distress to 115,249, while real estate & property firms in distress increased by 46% to reach 41,624.

Julie Palmer, partner at Begbies Traynor, said: “While uncertainty around the outcome of the Brexit negotiations has undoubtedly had an impact on business confidence across the UK, the economy has also faced a wide range of unexpected headwinds which have dampened progress over the past year. Currency fluctuations, rising interest rates, subdued consumer spending and a cooling property market are just some of the factors that have combined with growing political uncertainty to push nearly half a million UK businesses into financial distress over the past 12 months.

“Should these headwinds continue, they could impact the Government’s bargaining power when it comes to negotiating new trade deals after the UK’s exit from the European Union, which would be a major concern.”

“Brexit concerns and the fallout from Carillion’s collapse caused further delays in large infrastructure and construction projects.”

Ric Traynor, executive chairman of Begbies Traynor, added: “Although the UK economy is still growing, it is now starting to lag behind many other G20 members, with predicted GDP growth during 2018 of around 1.7%. The latest Red Flag figures reflect this slowdown with increased financial distress being felt across every sector and region of the UK.

“The UK’s crucial Services sector experienced a major slowdown last month, as the impact of snow disruption, inflation and Brexit-related uncertainty hit output across the sector, while the Automotive industry has also experienced a downward trend, with declining car sales, job cuts and growing fears about restrictive future trade barriers with Europe. At the same time, the UK Construction sector last month suffered its biggest drop in activity since the 2016 Referendum vote, as Brexit concerns and the fallout from Carillion’s collapse caused further delays in large infrastructure and construction projects.

“While the recent recovery in Sterling should put UK businesses who import raw materials into a stronger trading position, the biggest positive impact on business confidence is likely to come when we finally receive clarity over how our eventual exit from the EU will look. In the short term however, the most pressing issue is whether or not the Bank of England decides to raise interest rates next month. If they do, it could push many struggling businesses, particularly those with high levels of debt, into formal insolvency.”

Year on year ‘significant’ distress in Scotland alone affected many sectors with the worst hit being telecommunications (57% rise); professional services (50%); leisure and culture (47%); and financial services (46%). The strongest performing sectors were: hotels and accommodation, up by just 8%; bars and restaurants (15%); food and drink retail (16%); and printing (17%).

Ken Pattullo, who leads Begbies Traynor in Scotland, said: “To see such a dramatic rise in significant distress since last year, both in Scotland and across the whole of the UK, is extremely worrying. Amid continuing concerns about the impact of Brexit and falling confidence among businesses and consumers, the prospects for the British economy in the year ahead look far from promising.

“With economic growth predicted to continue to lag behind that of the other G7 nations in 2018, there seems little hope of a change in fortunes and directors would be well advised to keep a close eye on cash flow and seek professional help at the first signs of trouble when the widest choice of options will be open to them.”