Manufacturers bear the brunt as insolvencies rise

INSOLVENCIES rose in the Midlands last year, ending a six-year downward trend, with the manufacturing industry the worst affected.

Analysis from KPMG suggests the decline was more pronounced in the second half of the year – post-Brexit.

For the UK as a whole, figures from the London Gazette show that 1,174 companies, or groups of companies, entered administration in 2016. This compared with the 15-year low of 1,111 in the previous year.
 
The picture in the Midlands shows a similar trend, with insolvencies in the region increasing from 163 to 169.

Chris Pole, restructuring partner at KPMG in the Midlands, said ongoing uncertainty in the geo-political and economic environment, coupled with the depreciation of sterling, was now starting to be felt more keenly by the region’s businesses.

He said: “Although the numbers have risen, the failure rate of region’s businesses following the Brexit vote was lower than initial predictions. However, while businesses may have adapted well to Brexit, it’s likely that they will face ongoing financial pressures as a result of the uncertainty in the market.”

Looking at which sectors were most vulnerable in 2016, the manufacturing industry fared the worst in the Midlands with 33 firms entering administration, largely due to an increase in costs for imported raw materials, which subsequently, squeezed profit margins.

Nationally, the construction industry was hit the worst, with 174 firms becoming insolvent.

Looking ahead to 2017, Mr Pole said he expected the numbers of insolvencies to tread a steady path.

“While there are many positive signs for 2017 including continued GDP growth, low unemployment and low interest rates, and increased order books in some sectors, I still sense a degree of uncertainty such that I suspect businesses will continue to adopt a cautious approach until matters become clearer after the triggering of Article 50,” he said.

“Inflationary pressures will also start to play their part. So while I do not foresee any sudden spike in insolvency numbers on the horizon, I would not be surprised to see the slight steady uptick in administrations continue over the months ahead.”