Tens of thousands of companies in the South West were in “significant” financial distress in the final quarter of 2021, new data reveals.
Some 41,372 firms across the region were in difficulty - up 4% on the previous quarter of the year - according to research by corporate recovery firm Begbies Traynor.
The Red Flag Alert report, which monitors the financial health of British companies, found the sectors in most distress were hotels and accommodation (up 8%) and travel and tourism (up 9%).
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The data covered businesses across Avon; Bristol; Cornwall; Devon; Dorset; Gloucestershire; Somerset; Wiltshire; and the Isles of Scilly.
In Bristol alone, some 7,000 firms were reported to be in financial trouble, the research found.
It indicates the debt storm which has been brewing for years - and temporarily put on pause by measures to support companies through the pandemic - could now be about to hit, sending shockwaves through many industries.
Nationally, more than half a million businesses were in trouble over the period - a 5% increase since Q3 of 2021. There are also concerns about a steep increase in County Court Judgements (CCJs), which are often an early sign for future insolvency, as official data showed a 106% rise.
Paul Wood, partner at Begbies Traynor in Bristol, said: “Businesses in Bristol [and the South West] that have bravely battled through the pandemic could now finally start to fail as the pressures they face become too much.
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“Support from the government such as furlough payments, tax reliefs and a moratorium on landlords being able to evict businesses due to rent arrears cannot go on forever.
“Without those in place to protect them, a rising number of companies in the region will have no other option but to throw in the towel after two years of struggling on in the economic uncertainty caused by measures to combat coronavirus.”
Mr Wood said the “lag effect” of the economic fallout from Covid, plus spiralling inflation, had created a “perfect economic storm” for many companies, particularly the region’s SME sector.
According to Begbies Traynor, inflation is now the “silent thief” in the economy, with the true rate potentially running far beyond the official 5.4% estimated - and possibly more than seven times the Bank of England’s target of 2%.
“Rising wage, energy and materials costs mean the CPI figures are showing only part of the story and the subsequent impact on the public’s disposable income is expected to be far greater,” Begbies Traynor said in a statement.
However, although official government support measures are unwinding, there are indications the authorities are willing to help businesses which are trying to fight on.
Mr Wood added: “Anecdotally, we are hearing stories about HMRC giving companies two or even three years to pay their tax bills.
“Extra leniency may not be an official policy, but it sends a signal that officials are trying to help businesses survive – even though it might only be delaying the inevitable.”