Almost half a million UK firms in ‘significant’ financial distress ahead of rate rise

The Monetary Policy Committee will decide whether or not to increase interest rates this Thursday (November 2), but new data suggests almost half a million UK businesses are already in a state of financial distress – even before the impact of an interest rate hike is felt.

Research from insolvency firm Begbies Traynor found that, at the end of Q3 2017, 448,011 businesses reported ‘significant’ levels of financial distress.

The figure is up 27% on the same period last year, when 352,552 were experiencing fiscal woes.

The data was compiled in Begbies Traynor’s latest Red Flag Alert research, which monitors the financial health of UK companies.

It was found that close to 250,000 of the companies surveyed ended the quarter with a negative net worth – so called ‘zombie’ businesses that have survived in recent years thanks to the prolonged low interest rate environment and flexible labour market. Such businesses, Begbies Traynor explained, do not have the working capital to fund growth or absorb rising input prices.

The Red Flag Alert research also indicated that ‘significant’ financial distress increased in every sector and region of the UK during the last 12 months.

Professional and Financial Services were the worst affected, with cases of distress rising 42% and 34% respectively.

London was found to be the worst performing region by volume, with the number of firms ending Q3 in a state of ‘significant’ financial distress rising 6% year on year to 107,896 – almost a quarter of the UK total.

Begbies Traynor partner Julie Palmer 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 no segment of the economy has ended the period unscathed.”