Consumer spending driving local recovery but SMEs still struggling – Red Flag Alert

BUSINESSES in Birmingham are continuing to benefit from the UK’s economic recovery, according to the latest Begbies Traynor Red Flag Alert research for Q3 2013.

Year on year, city businesses experiencing ‘Critical’ distress levels fell by 35%.

And the wider Midlands region follows the on-going improving national trend with a 29% annual decline in ‘Critical’ distress levels.

Quarterly, however, there is a slowing trend, with businesses across all sectors in the region experiencing a 7% reduction in ‘Critical’ financial problems, falling from 422 in Q2 2013 to 394 in Q3 2013. Birmingham matched the national quarterly picture, in which levels of ‘Critical’ financial distress among businesses decreased 2%.

The overall positive figures are being attributed to rising confidence amongst Midlands consumers, with bars & restaurants, hotels and general retail all experiencing marked quarterly reductions in businesses suffering ‘Critical’ distress, falling 52%, 33% and 29% respectively.

This uptick in consumer activity made up for subdued summer trading within the UK’s core services sectors, Begbies – a business recovery specialist – suggests.

Again at regional level, the statistics bear this trend out, with financial services, professional services and support services all experiencing increases in ‘Critical’ distress levels during the last three months, rising 50%, 46% and 25% respectively.

These increases bring the total number of Midlands services businesses suffering ‘Critical’ distress up to 35. Of these, 97% are small and medium-sized businesses (SMEs).

According to Begbies Traynor’s analysis, declining net worth and increasing working capital deficits are driving the reported increases in distress among this group.

John Kelly, regional manager partner at Begbies Traynor in Birmingham, said: “Following a well-documented second and third quarter surge for the UK services sector, this positive momentum masks a worrying picture among the services industry SMEs.

“And the local statistics seems to chime with what is happening at national level. While transactional volumes have picked up across the sectors, they have remained at historically low levels, meaning that smaller, people businesses have struggled to maintain market share during the fallow summer months in the face of competitive pressure for new business from their larger peers.

“Given their significant high fixed cost bases and working capital requirements, the hopes of these SMEs will be firmly pinned on strong trading in the final quarter of the year, while effective management of their cost base and an improvement in the lending environment will be crucial to reverse this worrying trend.”