U.K. faces highest level of financial distress in Europe with corporate deleveraging at its peak since 2008

Some 9.9% of UK companies were in distress last year, up from 8.4% in 2022, according to a survey from consulting firm Alvarez & Marsal. It was the largest year-over-year increase in the survey and only the combined market of Belgium, Netherlands and Luxembourg saw a higher rate, at 10.2%. 

The consulting firm pointed to “stagnant economic conditions” in the UK, which aligned with the pick-up in struggling businesses. The UK economy went through a shallow recession last year.

The UK is also among countries with “significant exposure to the sectors under most pressure, particularly those reliant on consumer spending like retail, media & entertainment, and industries with high-cost bases, including manufacturing and construction,” Chris Johnston, European co-head of financial and operational restructuring at A&M, said in emailed comments. 

Europe, Middle East

A&M’s analysis shows levels of distress reaching the highest since the peak of the pandemic across Europe and the Middle East, with tighter monetary policy and slower growth hitting over-leveraged companies. Around 9.2% of companies were considered distressed in 2023 across the region, according to the study, which took into account more than 8,200 listed and private firms. 

The survey classifies firms as in distress if they have significant deficits in both their financial and earnings situations.

“The great unwinding of corporate leverage is currently underway, with defaults in Europe at their highest year-to-date levels since 2008,” A&M said in its report on the survey results, citing data from S&P Global Ratings.

In the UK, A&M highlighted how a slowdown in consumer spending impacted the retail fashion sector, with 21% of firms in the industry now in distress. Superdry Plc, known for its boldly branded clothing, is planning to delist from the London Stock Exchange following a debt restructuring.

However, the UK sector with the highest share of distress was media and entertainment. A&M pointed to consumers reassessing subscriptions like streaming services and the disruption from the US writers’ strike on film and TV production. 

Across the continent, chemicals companies also saw higher levels of distress, amid lower demand and a lack of competitiveness against other regions, particularly China.