North West business distress on the rise ahead of interest rate decision
More than 44,000 businesses across the North West are in a state of ‘significant’ financial distress, even before the effects of a possible interest rate hike later this week are felt.
The Red Flag Alert research from Begbies Traynor, which monitors the financial health of UK companies found that 44,197 businesses were experiencing ‘significant’ levels of financial distress at the end of the third quarter of 2017, up 26% compared with the same period last year (Q3 2016: 35,137).
Begbies Traynor warns that with the prospect of an interest rate rise alongside increasing employment costs, due to changes in the minimum wage combined with HMRC’s crackdown on personal service companies (often set up to avoid employers’ national insurance), some companies across the region may struggle to survive.
The research also showed that ‘significant’ financial distress rose across every sector in the North West with firms in the professional services sector the worst affected, increasing 37%. Telecommunications companies experiencing ‘significant’ financial distress also rose, with 36% of firms struggling during the third quarter of the year.
Support service companies and construction firms had the highest volume of businesses in ‘significant’ financial distress, with 11,052 and 5,941 respectively experiencing difficulties over the past quarter.
Gary Lee, partner at Begbies Traynor in the North West, 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 themselves, taking too many risks after being lulled into a false sense of security by the continued low interest rate environment.
“Following a spate of downbeat economic updates, showing everything from rising inflation and increasing corporate insolvencies to slumping retail sales and the further decline of the UK’s vital construction sector, our data shows that the majority of sectors in the North West economy have had a difficult third quarter.
“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, my biggest concern is on the UK’s ever-expanding consumer credit bubble, which could burst at any minute, knocking the consumer industries and financial sector for six.
“While the prospect of an interest rate increase will of course go some way to addressing this, the knock-on effect for many struggling North West businesses with high levels of debt could be severe.”
