05 February 2024 , 11:08
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UK businesses are struggling as financial distress, mainly caused by inflation and high interest rates, ranks second-highest in Europe according to the Weil European Distress Index.
The survey found that poor profit-making was the biggest cause of business trouble throughout the continent. German firms top the chart, followed by UK companies grappling with balancing rising expenses and maintaining constant production.
The study also found that numerous firms might need to cut their prices to keep their sales ticking over. Challenges faced by the European real estate sector including growing finance costs, high interest rates, plummeting valuations and inflated energy and construction outlays make it the "most distressed sector" on this index.
The healthcare sector isn't faring much better either occupying the second position in terms of distress, thanks to high-interest rate burden, underperforming investments, and rising operational costs. Coming third is the retail industry bracing itself for a "double squeeze" from growing re-mortgage rates and increasing rents, compounded by a cost-of-living crisis that has curbed consumer expenditure.
The study found that fights in the Red Sea are causing big problems for shops around the world. This is because attacks on ships have disrupted supply, making it difficult for shops in Europe to stock the goods customers want.
Shop prices 'are yet to peak and will remain high' as inflation hits new heights
Andrew Wilkinson, of Weil's London office, 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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