Distress levels rise by more than a fifth for Birmingham firms
The level of firms in Birmingham suffering significant financial distress rose by more than a fifth during the third quarter compared to the same period last year.
The travel and tourism sector was badly impacted, while firms in the construction industry were also suffering hardship.
The situation is outlined in the latest Red Flag Alert, produced by business recovery firm Begbies Traynor. The research monitors the financial health of UK companies.
According to the latest report, 448,011 businesses in the UK experienced significant levels of financial distress during Q3 – up 27% compared the same period last year (Q3 2016: 352,552).
The trend was reflected in Birmingham – although the city fared better than the national average.
In total, 6,749 firms were said to be facing significant distress – up 22% (5,517) on Q3 2016.
Distress levels in the travel and tourism sector rose 38%, while the number of firms in the construction sector impacted by the tougher economy, rose from 474 firms in Q3 2016 to 562 in the same period this year.
Other sectors affected were food and drug retailers (up almost a quarter at 24% – 286 to 354) and industrial transportation and logistics, (up 50% to 167).
Across the Midlands as a whole, there were 54,866 firms classed as being in significant distress – up 25% (44,007) on the same quarter in 2016.
The research highlights that almost 250,000 of these companies (Q3 2107: 248,619) ended the period with negative net worth. These so-called ‘zombie’ continue to owe their existence to the prolonged low interest rate environment and flexible labour market. However, nearly all of these do not have adequate working capital to fund any growth or absorb rising input prices.
The Begbies Traynor research also shows distress levels rising across every sector and region of the UK over the past year.
The Professional and Financial Services sectors are amongst the worst affected, increasing 42% (26,113) and 34% (11,079) respectively.
Support Services, Construction and General Retail sectors had the highest volume of businesses in distress over the period at a respective 101,614, 57,338 and 35,895.
Mark Malone, partner at Begbies Traynor’s Birmingham office, said: “The number of firms experiencing ‘significant’ financial distress has reached unprecedented levels over the past 12 months, as businesses in search of growth have overstretched, perhaps taking more risks because of continued low interest rates. Following the latest economic updates, showing everything from rising inflation and slumping retail sales to the further decline of the construction sector, our data suggests that almost all sectors and industries have been adversely affected.
“With consumers continuing to borrow using credit cards, personal loans and car finance at a rate almost five times faster than their growth in earnings, our biggest concern is the UK’s ever-expanding consumer credit bubble; which could burst at any time.”
