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UK companies facing second-highest level of financial ‘distress’ in Europe

05 Feb 2024 2 minute read
A view of the City of London skyline. Photo Yui Mok/PA Wire

UK businesses are facing the second-highest level of “deepening” financial distress in Europe due to inflation and high interest rates.

The Weil European Distress Index has shown failing profitability as the main driver for business distress across the continent.

UK companies are experiencing the second-highest levels of financial distress in Europe, with German firms leading the way.

European businesses are struggling to balance increasing expenses with the need for continuous production, the research found.

Reduce prices

Many companies have indicated they will have to reduce prices in a bid to maintain sales volumes.

The European real estate sector is facing challenges such as high interest rates, falling valuations, elevated energy and construction costs, and increasingly expensive financing – cementing it as the “most distressed sector” in the index.

Meanwhile, the healthcare sector is the second-most distressed sector due to interest rate burden, poor investment performance, and rising operational expenses.

Ranked third, the retail sector faces a “double squeeze” of higher re-mortgage rates and escalating rents. In addition, the cost-of-living crisis has limited consumer spending.

Conflict

The study also found increased conflict in the Red Sea has harmed global trade, which is due to the Houthi attacks on commercial shipping, which have disrupted trade routes and caused significant challenges for European retailers.

As a result, there is growing concern about profitability in the retail industry.

Andrew Wilkinson, senior European restructuring partner and co-head of Weil’s London restructuring practice, said: “As the real estate sector takes the lead in distress within Europe, it’s clear that investment hesitancy and rising costs are symptoms of a larger economic malaise.

“High leverage poses a significant vulnerability in an unforgiving market, where companies confront rising costs against a backdrop of falling valuations.

“Despite falling inflation, retail and consumer goods companies are still under immense pressure.

“A challenging Christmas trading period, lack of consumer spending, and issues around pricing reductions have left retailers feeling less than optimistic about the year ahead.

“With escalating tensions in the Red Sea impacting trade routes, businesses will be monitoring what this will mean for distress levels, particularly with regards to issues around profitability.”


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hdavies15
hdavies15
22 days ago

“UK businesses are facing the second-highest level of “deepening” financial distress in Europe due to inflation and high interest rates.” Can the writer distinguish between the small and medium sector (SME) who are under a great deal of stress and the bigger multinational corporations who are actively driving inflation?

Many companies have indicated they will have to reduce prices in a bid to maintain sales volumes.” Surely that’s good news after all the sales price inflation that’s been inflicted on consumers over recent years.

Jim1
Jim1
22 days ago

Don’t tell me…45 years of globalisation and free market economics have failed to deliver us to the ‘promised land’. Who could have guessed the panacea was flawed. Evidently not most politicians and economists.

Mab Meirion
Mab Meirion
22 days ago

Tory..the party for business…just not UK businesses…India maybe, as far as Sunak’s family is concerned, crooked like a fiddler’s elbow!

Mab Meirion
Mab Meirion
22 days ago
Reply to  Mab Meirion

Sunak says NI executive should focus on things that matter…like Rwanda…plonker !

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