Reen Blake-Carr investigates the number of businesses that are in danger of insolvency in the 11 Core Cities and discusses some of the factors that might be causing this issue.
The UK, much like the rest of the world has been through a turbulent few years – a consequence of the global pandemic and other crises. These economic shocks have attributed to a staggering increase in inflation and have caused one of the worst cost-of-living crises in recent memory.
These shocks have also caused a huge number of businesses have become insolvent as they have either failed to adapt to rising inflation, rapid economic changes or the cost of living crisis.
Companies insolvencies are on a 10% increase from a year ago, which puts it on track for the highest number of companies going bust since the financial crises in 2009. The number of firms that are under critical financial stress has increased by 25% in the last three months, according to this BBC article This is due to the perfect storm of businesses trying to pay back COVID-19 business support during a period of high interest rates, combined with high inflation hitting customer spending, impacting businesses’ finances and also impacting businesses fixed costs such as energy costs.
The purpose of this blog is to use data provided by Red Flag Alert to assess how many companies are at risk of becoming insolvent using the Red Flag Measure in the 11 Core Cities. This measure indicates companies that are at risk of failing or becoming insolvent. One flag would indicate a company that is in danger but can still change its situation, moving to three flags indicates the highest level of jeopardy.
The data that is reported for this blog is obtained from the red flag and includes the red flag rating of companies by city region and sectors that have the highest amount of businesses with one red flag rating.
The geography used is at the local authority level looking at the 11 Core Cities.
Companies at risk of insolvency in the 11 Core Cities:
| City | Total businesses | Businesses with one red flag | % of total businesses with one red flag |
| Belfast | 25,459 | 1,968 | 7.73% |
| Birmingham | 94,260 | 8,214 | 8.7% |
| Bristol | 38,482 | 3,552 | 9.23% |
| Cardiff | 37,875 | 2,806 | 7.40% |
| Glasgow | 52,499 | 4,194 | 7.98% |
| Leeds | 63,240 | 5,782 | 9.14% |
| Liverpool | 36,873 | 3,252 | 8.81% |
| Manchester | 58,740 | 5,390 | 9.17% |
| Newcastle | 19,460 | 1,549 | 7.95% |
| Nottingham | 23,650 | 2,071 | 8.75% |
| Sheffield | 37,648 | 3,195 | 8.48% |
Belfast:
Sectors with the most companies with one red flag:
| Sector | Number of companies with one red flag | % of total businesses with one red flag |
| Wholesale and Retail trade, Repair of Motor Vehicles and Motorcycles | 271 | 1.06% |
| Construction | 210 | 0.82% |
| Information and Communication | 213 | 0.83% |
| Professional, Technical and Scientific Activities | 335 | 1.31% |
Birmingham:
Sectors with the most companies with one red flag:
| Sector | Number of companies | % of total businesses with one red flag |
| Real Estate | 1,125 | 1.19% |
| Professional, Technical and Scientific services | 1,129 | 1.19% |
| Administrative and Support service activities | 1,009 | 1.07% |
| Manufacturing | 534 | 0.56% |
Bristol:
Sectors with the most companies with one red flag:
| Sector | Number of
Companies |
% of total businesses with one red flag rating |
| Construction | 464 | 1.2% |
| Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles | 424 | 1.1% |
| Information and Communication | 471 | 1.22% |
| Real Estate | 659 | 1.71% |
Cardiff:
Sectors with the most companies with one red flag:
| Sector | Number of companies | % of total businesses with one red flag rating |
| Professional, Technical and Scientific activities | 487 | 1.28% |
| Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles | 398 | 1.05% |
| Construction | 338 | 0.89% |
Glasgow:
Sectors with the most companies with one red flag:
| Sector | Number of
Companies |
% of businesses with one red flag rating |
| Construction | 449 | 0.85% |
| Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles | 674 | 1.28% |
| Professional, Technical and Scientific Services | 745 | 1.41% |
| Administrative Support Service | 460 | 0.87% |
Leeds:
Sectors with the most companies with one red flag:
| Sector | Number of
Companies |
% of total businesses with one red flag rating |
| Construction | 696 | 1.10% |
| Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles. | 871 | 1.37% |
| Information and Communication | 601 | 0.94% |
| Professional, Technical and Scientific | 1,078 | 1.69% |
| Real Estate | 599 | 0.94% |
Liverpool:
Sectors with the most companies with one red flag:
| Sectors | Number of
Companies |
% of total businesses that have one red flag rating |
| Construction | 475 | 1.28% |
| Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles | 429 | 1.16% |
| Real estate activities | 400 | 1.08% |
Manchester:
Sectors with the most companies with one red flag:
| Sectors | Number of
Companies |
% of total businesses that have one red rating |
| Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles | 1,067 | 1.81% |
| Information and Communication | 506 | 0.86% |
| Professional, Technical and Scientific Services | 925 | 1.57% |
| Real Estate Activities | 725 | 1.23% |
Newcastle:
Sectors with the most companies with one red flag:
| Sectors | Number of
Companies |
% of total businesses with one red flag rating |
| Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles | 245 | 1.25% |
| Professional, Technical and Scientific Services | 251 | 1.28% |
| Real Estate Activities | 216 | 1.10% |
Nottingham:
Sectors with the most companies with one red flag:
| Sectors | Number of
Companies |
% of total businesses with one red flag rating |
| Construction | 269 | 1.13% |
| Wholesale and Retail Trade; Repair of Motor Vehicle and Motorcycles | 318 | 1.34% |
| Professional, Technical and Scientific Services | 321 | 1.35% |
| Real Estate Activities | 249 | 1.05% |
Sheffield:
Sectors with the most companies with one red flag:
| Sectors | Number of
Companies |
% of total businesses with one red flag rating |
| Construction | 438 | 1.16% |
| Wholesale and Retail; Repair of Motor Vehicle and Motorcycles | 544 | 1.44% |
| Professional, Technical and Scientific Services | 490 | 1.30% |
Factors behind the risk of insolvency:
The tables above show that there are several sectors that are at high risk of insolvency in each of the 11 Core Cities.
Construction is one of the hardest hit sectors in recent months with company insolvencies up 46% as compared to three months ago, this is due to higher material costs and higher levels of borrowing which means people cannot justify home renovations currently.
The Wholesale and Retail Trade sector has also experienced its fair share of difficulties. Retail sales were lower at the end of September, down 2.5% when compared with February 2020 which reflects the high inflation and borrowing costs for consumers, reducing discretionary purchases.
The Real Estate sector like the aforementioned sectors has been also experiencing tough market conditions, with inflation being held at 5.25% by the Bank of England in the latest meeting it would discourage new potential buyers as they will be waiting for interest rates to decrease so buying a house would be more affordable. With the lack of new customers and high interest rates, it reflects that the real estate sector will be struggling until market conditions and consumer confidence become positive to start buying homes again.
Note on the blog
A current limitation of this blog is that for readability and size constraints, not all sectors could be added to this blog for each city region – so the sectors with the highest amount of businesses with one red flag were chosen.
This blog was written by Reen Blake-Carr, Policy and Data Analyst, City-REDI / WMREDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WMREDI or the University of Birmingham.