More UK firms experiencing financial trouble

Insolvency firm Begbies Traynor's latest "red flag alert" showed that 147,836 companies got into financial trouble in the final three months of 2010, up 4 per cent on a year earlier and marking the first year-on-year rise for seven quarters in a row.

The number of companies in trouble increased 20 per cent on the previous quarter, which Begbies said was greater than the traditional seasonal uplift at the end of the year.

Begbies also said the figures indicate that corporate insolvency numbers could increase from around 21,500 in 2010 to around 23,500 in 2011 as government spending cuts start to bite.

Small businesses would be worst affected in the "darkest hour before the dawn".

The report, which monitors the early warning signs of company distress, found that 3,018 companies were in the "critical" category, owing 52.7 billion to their creditors, suppliers and service providers.

While the amount owed was lower than the third quarter of 2010, the number of firms in trouble had increased by 3 per cent, a sign that more small businesses were experiencing financial problems, said Begbies.

Ric Traynor, executive chairman of Begbies Traynor, said: "These figures show the first evidence of a hardening of creditor attitudes and the real strain being felt by UK companies at this point in the cycle."

He added: "For smaller businesses, we are entering the darkest hour before the dawn as they face the dual challenges of weak domestic demand and greater pressures from larger competitors and business customers looking to preserve their own profitability.

"As such, it will be smaller businesses that bear the brunt of an increase in formal insolvencies."