Businesses in “significant” distress
1st November 2017
Begbies Traynor, a professional services consultancy firm has undertaken Red Flag research into the financial health of UK businesses. It reported that nearly half a million businesses across the UK are in a state of ‘significant distress’. This is likely to be aggravated if the interest rates are increased tomorrow.
The research showed that 448,011 businesses were experiencing distress at the end of the third quarter, up 27% on a year ago.
A further quarter of a million of these companies ended the period with negative net worth, representing a sizeable population of so called “zombie” companies. These 250,000 companies have survived by exploiting our low interest rates and flexible labour market, but have no adequate working capital to expand or compete with bigger businesses. Begbies Traynor warns an increase in employment costs as a result of the proposed interest rate rise, could kill off some of these struggling companies altogether.
The research also showed that distress rose across every sector and region of the UK over the past year, but surprisingly London was the worst. An impressive figure of 107,896 companies ended the period in financial distress in London, an increase of 6% year on year.
Begbies Traynor partner Julie Palmer said: “The number of firms experiencing distress has reached unprecedented levels over the past 12 months, businesses have overstretched themselves after being lulled into a false sense of security by the continued low interest rate environment”.
The research warned that another economic depression could occur if the UK’s “consumer credit bubble burst”, and feared the effect it could have on our industries if consumers continue to borrow and spend at such a rapid rate.
Regardless of whether interest rates rise or fall on Thursday, personal service companies seem to be experiencing distress of their own. The new trading conditions that came as a result of the recent HMRC crackdown has made it tough for many, the report added.
‘As a result, it is likely that we will see a trend of increasing insolvencies among this group. This could put added pressure and costs on the larger companies and sectors that they serve.’
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