Just about six weeks into the year, 2025 has been off to a bleak start for business confidence in the UK. There has been an alarming surge in the levels of financial distress with rising costs, weak consumer confidence, and mounting tax pressures. 

A long-running GfK survey reveals that people are cutting back on major purchases and increasing their savings, reflecting widespread economic uncertainty. Lloyds Bank’s latest research further underscores this trend, indicating that businesses expect sluggish growth due to escalating operational expenses.

Where critical financial distress is defined as a winding-up petition or an outstanding county court judgment exceeding £5,000, research has revealed a staggering 50% increase in such cases between September and December 2024. The total number of businesses in financial distress crossed 45,000 —the highest since records began in 2004. This sharp rise coincides with HMRC’s intensified efforts to recover overdue taxes, adding further strain to companies already grappling with inflation, soaring energy bills, and wage hikes.

For many business owners, financial pressures have reached breaking point. Across the UK, liquidations and closures highlight the dire situation, especially for businesses operating on razor-thin margins in consumer-facing industries. Moreover, tax increases set for April—including higher National Insurance rates and reduced employer thresholds—could drive even more firms to the brink. Many companies already struggling with high borrowing costs and weak consumer demand may find these additional burdens impossible to bear.

Region Specific Insights

Late payments in the North East continue to strain business cash flow, with overdue invoices surging to more than 173,000 in January 2025—a 21% increase from the previous year and the highest level since October 2022.  These delays are creating severe cash flow bottlenecks, forcing businesses to postpone their own supplier payments and heightening the risk of insolvency.

2025 could mark a critical juncture for thousands of UK businesses, many of which have struggled to survive for years. Without an improvement in economic conditions, a wave of closures and restructurings could reshape the business landscape in the coming months. 

Meanwhile, insolvency-related activity in the North West has dropped to its lowest level in a year, according to new research from R3. However, despite the decline, the region still recorded the second-highest number of insolvency-related cases in January, trailing only Greater London, which saw 384 cases. The construction sector remains among the most vulnerable, facing ongoing financial strain due to project delays, rising costs, and persistent supply chain disruptions.

Stalled Output for Construction at Just 0.4% Growth in 2024

According to the latest data from the Office for National Statistics (ONS), Construction output in Great Britain edged up by only 0.4% in 2024. December’s figures marked the final data set for the year, underscoring the sluggish pace of growth.

Repair and maintenance (R&M) led the sector, with public housing output surging 14.2% year-on-year. However, new construction struggled, with only the ‘public other’ sector—covering education and health—posting positive growth. Overall, new housing output fell by 5.7%. In terms of insolvencies, fewer construction firms have collapsed in January 2025 than in any month since June 2021, with only 10 companies entering administration. 

Does this suggest that the worst of the insolvency wave may have passed? We can’t say for certain yet. There is a hint of cautious optimism for 2025, as the country hopes for fewer collapses compared to previous years. However, industry experts warn that insolvency rates may not stay low for long. The Insolvency Service has once again ranked construction as the second-highest sector for insolvencies last year. Rising labour costs, supply chain challenges, and economic uncertainty could push more businesses into financial trouble in the months ahead.

Insolvency News | Connect Modular Collapses, 60 Staff Made Redundant

Scottish volumetric housebuilder Connect Modular has shut down, making 60 employees redundant just six months after delivering its largest-ever project. The East Ayrshire-based firm, originally founded in 2013 as the Wee House Company, completed Scotland’s biggest modular low-rise affordable housing development in summer 2024—a £17 million, 101-home scheme in Kilmarnock.

Despite this milestone, financial pressures mounted. A December internal newsletter urged staff to push forward in 2025 with projects in Garnock Valley, Livingston, Penicuik, and Clydebank, alongside preparations for Glasgow’s first operational net-zero modular housing development. Those plans have now been abandoned.

Joint administrators Michelle Elliot and Callum Carmichael of FRP Advisory took control of Connect Modular on 6 January. The firm ceased trading in the second week of January, with all 38 employees losing their jobs. A related company, Hope South West Limited, also folded, resulting in 10 additional redundancies.

Elliot cited heavy losses on historic contracts and rising operational costs as key factors in the collapse, saying the business faced “significant cash flow pressure.” She added that administrators will now focus on selling assets and assisting staff with redundancy claims and support services.

Insolvency News | BAM Construction Hit by £40m Loss

BAM Construction’s delayed Manchester Co-op Live arena project pushed the UK building division £40m into the red last year, according to the latest results from Dutch parent company Royal BAM. The firm cited project delays and supply chain disruptions as key factors behind the losses but did not specify the exact financial impact of the troubled contract.

The challenging year also saw BAM Construction’s revenue drop by 13% to £755m. In contrast, BAM Nuttall’s civil engineering division flourished, buoyed by HS2 and energy transition projects. The division reported a 24% rise in EBITDA to £80m, with turnover increasing by 15% to £1.312bn—delivering a strong 6% trading margin.

Despite the setback at BAM Construction, Royal BAM’s overall UK and Ireland operations remain robust, with the company’s order book surging 58% to £6bn. CEO Ruud Joosten remains optimistic about UK growth prospects, highlighting government-backed initiatives such as the Clean Power Action Plan, the Small Modular Reactor programme (in which BAM is partnering with Rolls Royce), and the New Hospital Programme.

Further announcements from the UK Government, including the long-awaited ten-year Infrastructure Plan, Strategic Defence Review, and Spending Review, are expected in early 2025, shaping capital investment for the next five years.

To find out more about the latest businesses in distress, visit Administration List today.