‘Twin-track economy’ claim as conditions divide performance
YORKSHIRE is set to experience a ‘twin-track economy’ as the prevailing conditions continue to hurt many companies but benefit others, according to the latest Begbies Traynor Red Flag Alert research.
The research has found that conditions in Yorkshire broadly reflect those in much of the UK, with substantial decreases in company distress levels in key sectors such as manufacturing and construction leading an overall improvement.
However, the rapid decline in the financial health of consumer facing industries, including retail, suggests the development of what Begbies Traynor describes as a ‘twin-track economy’.
The survey, which monitors a series of indicators of company distress, reveals that the number of companies in the region with ‘critical’ problems, such as the issuing of winding up petitions, fell by 36% from 334 cases in the third quarter of 2012 to 214 in the final quarter of the year.
Overall, the UK experienced a 12% decrease in the level of ‘combined’ distress, categorised as companies experiencing ‘significant’ or ‘critical’ financial distress, from 223,125 in the third quarter of 2012 to 196,636 in the fourth quarter, which Red Flag said indicated tentative signs of recovery for parts of the economy.
In Yorkshire, a number of industries have shown substantial improvement. Construction, the largest sector by number of businesses, saw a decrease of 39% in ‘significant’ financial distress from 1,688 cases to 1,023.
Real estate also saw a major improvement in fortunes, with distress levels dropping a dramatic 64% to 838 cases from 2,332 in Q3.
Manufacturing – including food and beverage, and other manufacturing – also dropped by 21% in Q4 2012 from 779 cases to 613.
While much smaller in terms of volume of business, the most significant improvements among other sectors were seen in industrial transportation and logistics, with a 47% decrease in distress from 429 to 227, and printing and packaging, with a 45% decrease from 102 to 56.
In stark contrast, Yorkshire, mirroring the UK as a whole, saw a clear deterioration in the financial health of most consumer facing sectors. Leading the increases in ‘significant’ financial distress in the fourth quarter of 2012 compared to the third quarter, was the general retailing sector with a 36% increase, followed by bars and restaurants with a 38% increase, and food retailing, which increased by 68%.
Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said: “Our Red Flag figures demonstrate an improvement in the financial health of the construction sector, which we believe reflects the fact that those construction firms that have survived the crisis are now benefiting from improving margins on a lower cost base.
“It is also evident that some construction firms have purchased land banks at substantially discounted prices following the financial crisis which, combined with a material improvement in the sector’s output towards the end of 2012, are encouraging signs.”
He added: “The substantial increases in financial distress in these key consumer-facing sectors demonstrate the sheer scale of the challenges facing the consumer economy, particularly as these rises come at a time when spending in the run up to Christmas should have provided a welcome boost to many of these businesses.
“It is clear that these businesses are feeling the effects of the constraints on discretionary consumer spending brought about by years of wage rises not keeping pace with the rate of inflation and households reducing debt, where possible.”
