BUSINESS distress was becoming more prevalent across every sector of the economy in the UK as a whole and most sectors in the North East, immediately before the outbreak of the coronavirus pandemic in the country.

The findings are according to the latest research from leading independent insolvency firm Begbies Traynor.

The firm’s latest quarterly Red Flag Alert data which monitors the financial health of UK companies, shows that in the first quarter of the year, many sectors were already struggling immediately before the COVID-19 crisis took hold in Britain.

The research shows levels of distress rising both quarter on quarter and, for many sectors, year on year in Q1 2020.

In the North East, two of the industries hardest hit by social distancing measures - bars and restaurants, and real estate and property - saw a 12 per cent and 19 per cent hike in distress levels respectively in the first three months of this year compared to the same period in 2019, leaving them ill-equipped to withstand the financial consequences of the pandemic.

Almost 500 bar and restaurant businesses and more than 1,000 estate agents and other property services firms in the region were already suffering from financial problems by the time the full lockdown was put in place across the country at the end of March.

By Q1 of this year, the North East had a total of 10,084 financially distressed businesses, up by 4 per cent on Q1 2019 and also by four per cent on the previous three months. Across the UK as a whole more than half a million (509,314) companies were already in financial distress, a figure that had climbed by three per cent since the previous quarter and by five per cent year on year.

The ‘significant distress’ measured in Begbies Traynor’s report refers to companies with relatively minor financial problems, such as having CCJs of less than £5,000 filed against them, or showing a marked deterioration in key financial ratios and indicators. It is often viewed as a warning of more serious financial problems to follow.

Gillian Sayburn, partner at Begbies Traynor’s Newcastle upon Tyne office, said: “In the face of the fastest and most severe global economic crisis ever seen, it is extremely worrying that swathes of businesses in the region, the majority of them SMEs, were already suffering from financial distress, making their post- COVID-19 recovery even less likely.

“Sectors such as hospitality and property in particular have been sent reeling by the social distancing measures that have forced the temporary closure of their businesses, and, unfortunately, it’s likely that only the most robust and resilient firms will be able to pick themselves up from this as the economy continues in freefall.”

She added: “The unprecedented Government measures to protect the income of both individuals and businesses are a welcome intervention, but while it may be the salvation of stronger organisations, state support is likely to have the effect of simply delaying the inevitable for too many companies and we expect to see a significant rise in insolvencies.

“The best current advice for business owners is to thoroughly research all the forms of help that are available, from investigating their insurance cover and talking to the bank to calling on the expertise of professional advisers, in order to gain vital breathing space in the face of these immense challenges.