Ken Pattullo

The latest Red Flag Alert data, published today shows that in Scotland, the more advanced ‘critical’ distress (which refers to companies that have financial problems such as decrees of more than £5,000 filed against them) rose by 132% compared with the Q2 2021, while the UK as a whole saw an increase of 37% since the same period the previous year. It also revealed a 71% increase in this type of advanced distress in the country in the second three months of 2022 compared with the previous quarter; in contrast, there was a rise of 3% across the UK as a whole quarter on quarter.

In terms of ‘significant’ or early-stage distress (which refers to businesses that have had decrees of less than £5,000 filed against them), Scotland saw a similar picture to that across the UK. In the three months from April to June 2022, the country saw this type of distress fall by 13% compared with the same period the previous year, while the national figure was -11%. However, Scottish businesses performed more strongly quarter on quarter, seeing a 1% fall in ‘significant’ distress while the rest of the UK saw no change.

In the second three months of 2022, over 29,000 businesses in Scotland saw instances of early stage distress and this affected almost 582,500 businesses across the UK.

Looking at how the Scottish business sectors have been impacted by early-stage distress in the last quarter compared with Q1 2022, those that performed most poorly were food and drug retailers, up by 6%; printing and packaging, increase of 5%; and food and beverages and industrial, both up by 2%. In contrast, sectors which saw falls in ‘significant’ distress since the previous quarter were financial services (down by 6%); bars and restaurants, utilities and health and education (all down by 4%); and construction, hotels and accommodation, and telecommunications (all fell by 2%).

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “It is worrying to see instances of ‘critical’ distress in Scotland already increasing by almost four times the UK-wide figure in Q2 2022 compared with the previous year, and also rising steeply quarter on quarter. While levels of early-stage distress here are closer to those across the UK and have seen a slight fall, many economists fear that the worst is yet to come. Unfortunately, the UK economy is continuing to be impacted by uncertainty over Brexit, together with ever-rising energy costs as well as supply chain issues as China undergoes further Covid lockdowns. We are warning Scottish businesses to prepare for a rocky road ahead.”

“Given the situation with the worsening cost of living crisis, it may well be that these latest figures do not yet reveal the strain of inflation with more distress yet to come as the winter approaches with further hikes in energy costs. While GDP figures for May surprisingly showed slight growth, they also revealed that consumer-facing services are already starting to feel the impact of lower consumer discretionary spend with a fall in retail sales and sports activities and recreation as people struggle to pay household bills. It is vital that businesses keep a watchful eye on cash flow and seek professional advice at the first sign of financial difficulties.”