Growing Number of U.K. Firms Face Bankruptcy as Lockdown Drags

The number of U.K. listed companies at risk of insolvency has doubled as restrictions aimed at curbing the spread of the coronavirus continue to ravage the economy.

A record 35% of U.K. companies issued profit warnings last year, according to a report by the consulting firm EY. There was also a surge in the number of companies issuing three or more profit warnings in a 12-month period, a warning sign for insolvency.

“Many U.K. businesses have been treading on thin ice for months, with government support propping them up,” said Alan Hudson, restructuring leader for U.K. & Ireland at EY. “While there is speculation these measures could be extended until the summer, the countdown has started, and in weeks or months we’ll find out how many companies can keep their head above water.”

The U.K. is back under severe lockdown restrictions following a spike in coronavirus cases in December. The government has so far committed almost 300 billion pounds ($411 billion) in emergency support for the economy but now faces pressure to extend thefurlough scheme after figures showing unemployment rising to the highest since 2016.

Sixty-two U.K. companies issued at least their third profit warning, double the total in 2019, according to the report. A total of 583 profit warnings were announced by U.K.-listed companies in 2020, the highest number in 21 years of EY research and 15% higher than the previous record set in 2001.

Retail has been one of thehardest-hit sectors, as visits to shops plunge with office workers staying home and the government advising consumers to avoid non-essential trips. Companies with a good online presence and the ability to adapt quickly have performed better, EY said, for example by shifting away from formal wear to athleisure.

— With assistance by Irene Garcia Perez

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