Insolvency risk to North West businesses rises
The “climate of uncertainty” has seen the number of North West businesses at risk of insolvency increase by more than two percentage points in the first half of the year.
According to new figures from the restructuring and insolvency trade body R3, 26.6% of businesses in the region are now considered above average risk of becoming insolvent within the next 12 months – equivalent to more than 95,000 companies. In January, 24.2% of firms in the North West fell into this category.
Paul Barber, the North West chair of R3 and a partner at Begbies Traynor, says “In the wake of the election result delivering a hung parliament, and the challenge posed by Brexit, it is not surprising that business risk scores have risen. As it is difficult to plan ahead, decisions get put on hold.
““The consumer-driven momentum that has kept the economy afloat since the Brexit vote is declining, households are experiencing the most protracted squeeze on living standards since the mid-1970s, and businesses are coping with costs of payroll tax, pension enrolments. Meanwhile the rise in inflation is putting pressure on manufacturers.
“Another factor reflected in these risk scores is the growth in the number of start-ups and early-stage businesses which in themselves tend to be more risky than established firms.”
The figures from BvD’s Fame database show that over 10,000 extra businesses were created between January and July, bringing the total number of active businesses in the North West to over 357,000.
Technology and transport continue to be the highest risk sectors of those monitored by R3, with 33% and 33.3% of firms respectively at risk.
They are followed by professional services, where the number at risk has risen by 1.8 percentage points to reach 30.8%. Other sectors which have seen increase in risk are manufacturing (now 21.2%, up from 19.7% in January) and agriculture (now 22.3%, compared with 20.1% in January).
However some sectors saw a decline in risk scores, including hotels (down to 19% from 20.4% in January), pubs (21.4%, from 23.6%) and restaurants (20.9%, from 22.7%) and retail (23.7%, from 24%). Construction stayed broadly the same at 25.6%.
Barber added: “The leisure sector has performed strongly this year, as consumers seem to be spending on experiences rather than consumer goods, while the fall in the pound has attracted overseas tourists and encouraged Britons to stay at home. Depite problems in some parts of the high street, risk in the retail sector has actually fallen.
“However given the current uncertainty, the economic situation could change fast. Businesses need to remain alert to signs of trouble and ready to adapt to the changing landscape.”