UK to avoid triple dip recession says Begbies’ Red Flag
THE UK will narrowly avoid an unprecedented triple dip recession, according to the latest Begbies Traynor Red Flag report.
Ahead of tomorrow’s GDP figures, Begbies Traynor said it latest research for Q1 2013 showed that the recovery of UK plc was continuing, with a 34% decline in ‘Critical’ financial distress among UK businesses compared to Q1 2012.
Across all sectors, UK businesses experiencing ‘Critical’ financial problems reduced from 5,000 in Q1 2012 to 3,283 in Q1 2013, indicating the UK economy has turned a corner.
However, it said this positive picture, led predominantly by improvements in the UK’s vital business services sector, masked a “patchy recovery” with sectors reliant on the consumer economy (general retail, leisure and media) as well as real estate, witnessing an increase in financial distress for the period.
Julie Palmer, Partner at Begbies Traynor, said: “The year on year improvement reflects the continued forbearance and benign monetary conditions facing UK businesses today, combined with an improving credit environment, albeit primarily for larger corporates. Business confidence is slowly returning in the form of greater business spending on both services and investment1.”
On a quarterly basis, the data reveals an 8% increase in ‘Critical’ financial distress from 3,044 in Q4 2012. Begbies said this increase could largely be attributable to seasonal factors such as the propensity for creditors and directors to take action ahead of having to file accounts for the new tax year.
However, certain consumer-facing sectors, including leisure (up 81%), hotels (up 63%) and general retail (up 27%) have been impacted by the unseasonably cold weather experienced throughout the first quarter of this year.
Lack of funding is said to remain a significant issue for UK SMEs, with many firms worried about finance options.
The report found that the number of companies that secured new funding, at 15,804 in Q1 2013, was down 14.5% from 18,943 companies in Q1 2012 and down 11% from 17,823 in Q4 2012.
“The underlying trend is arguably one of an improving picture. However, given the slight increase in distress compared to the previous quarter, it remains to be seen if we are out of the woods yet,” added Ms Palmer.
“With business rate increases planned in April, HMRC’s new PAYE Real Time Information requirements coming into effect, and further minimum wage rises ahead there are still significant headwinds for the UK SME sector, which is typically less able to bear the burden of these changes than their larger counterparts.”
The report concludes business services are leading the recovery with significant reductions in ‘Critical’ financial distress during the period. This was true in the case of both the Support Services and Professional Services sectors, which , decreased by 78% to 169 cases (Q1 2012: 760) and 63% to 66 cases (Q1 2012: 176), respectively year on year, or by7% from 181 in Q4 2012 and 14% from 77 in Q4 2012 respectively.
Begbies said the findings were consistent with the latest Services PMI data for March 2013, which found that the UK Services sector recorded its best growth in seven months on the back of increased business confidence, with new business volumes at their highest levels since May 2012.
Ric Traynor, Executive Chairman of Begbies Traynor Group, concluded: “The 34% fall in critical distress levels across the UK is another welcome sign ahead of this week’s GDP announcement and indicates that the economy may have finally turned a corner, even if only to historically low levels of growth.
“The return to strength of the UK’s important business services sector is particularly encouraging for the whole economy but the ongoing lack of funding to the SME sector, which is a fundamental driver of the economy, remains the greatest obstacle to a stronger and sustained recovery.”
