THE number of Southampton businesses in “significant” distress has dropped slightly – but there are warnings of “trouble building up in the system”.

There were 2,758 businesses in the city in significant distress in the first quarter of 2022, according to figures from Begbies Traynor’s Red Flag Alert.

That was a three per cent drop on the number struggling in the final quarter of 2021 and a 24 per cent fall compared with the same period in 2021.

Nationally, the number of businesses in significant distress stayed flat at 581,596 – but there was a marked increase in the number said to be in “critical” distress.

The figure for critical distress was up 19 per cent year-on-year, driven by a 51 per cent jump in the construction sector and a 42 per cent rise among bars and restaurants.

There was also a steep increase in County Court Judgements (CCJs), with 11,673 rulings in March – up 179 percent on the monthly average for the previous two years and the highest level in a single month in five years.

Steve Powell, partner at Begbies Traynor in Southampton, said: “While the year-on-year data of companies in Southampton in significant distress may be encouraging, the critical distress and CCJ numbers highlight troubles building up in the system.

“For the first time in more than a decade, inflation is the prime concern for businesses as companies struggle under rising costs.

“However, having ploughed so much money into protecting businesses over the past two years, the government won’t want to see it wasted as companies collapse, unable to repay their debts.

“Taking a hard line on repaying pandemic funding and other loans would likely drive many businesses over the edge, which no-one wants to see as the economy struggles to recover.

“As such, there needs to be a long-term view. For example, we could see support for businesses through leniency in repaying pandemic funding, or an approach like war bonds, with terms being extended as ministers follow the adage that a rolling loan gathers no loss.

“However, any businesses facing financial difficulties, for whatever reason, should seek professional advice in order to fully understand the options available.”

Begbies Traynor, a business recovery, financial advisory and property services consultancy, has been measuring corporate financial distress since 2004.

“Significant” distress describes businesses which have CCJs of less than £5,000 filed against them, or which have been identified by the Red Flag Alert’s credit scoring system.

The term “critical” distress is applied to businesses with CCJs of more than £5,000 filed against them.