Financial distress hits Yorkshire firms
The quarterly Red Flag Alert data, which is produced by business rescue and recovery specialist Begbies Traynor, showed that in April, May and June very severe "critical" distress and less serious "significant" distress levels rose in Yorkshire and across the UK.
In Yorkshire "critical" distress, which refers to businesses which have had winding up petitions or county court judgements of more than £5,000 taken out against them, rose by 26 per cent on the same period last year, hitting 165 businesses.
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Hide Ad"Significant" distress, which relates to businesses with minor CCJs filed against them, or those showing a marked deterioration in key financial ratios, rose by 9 per cent over the quarter and by 24 per cent since the same period in 2016, hitting more than 20,000 businesses in the region.
Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said: “The escalating levels of ‘significant’ distress, which are affecting every industry across our region, are of major concern and spell a discouraging forecast for both the Yorkshire and the UK economy.
"The worrying fact is that these sorts of less severe financial problems are generally seen as a warning of more serious problems to come and this is extremely unwelcome news."
He said the recently reported drop in manufacturing output, a construction industry slowdown and widening of Britain’s trade deficit by the Office of National Statistics have all helped to knock the value of the pound against the dollar and the euro and suggest an alarming reversal of the economic resilience that was being hailed by some after last summer’s referendum.
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Hide Ad“Yorkshire businesses should certainly ensure they have battened down all the hatches and have robust management systems and processes in place, as there is certainly no clear sense of when, or how, this impending economic storm is likely to pass,” added Mr Pitts.
Across the UK as a whole "critical" distress rose by 21 per cent year on year and "significant" distress was up 25 per cent compared with the same quarter in 2016.
The construction industry was particularly badly hit. Construction companies accounted for more than a quarter (27 per cent) of all the "critically" distressed businesses in Yorkshire, with a 29 per cent rise in severe distress since the same period last year.
Construction also saw a 25 per cent climb in "significant" distress since last year’s figures, with the industry making up 14 per cent of all "significant" distress in the region, affecting 2,782 building companies.
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Hide AdOther Yorkshire industries which saw a jump in distress levels include manufacturing, which saw "significant’ distress rise by 16 per cent year on year to affect 1,004 businesses.Food and drug retail saw a 14 per cent increase, general retail saw a 20 per cent rise and bars and restaurants witnessed a 20 per cent rise to affect 981 businesses.
Ric Traynor, executive chairman of Begbies Traynor, said: “Our Red Flag research shows that a recent loss of momentum in the economy is putting increased financial pressure on UK businesses, with SMEs bearing the brunt of this rising distress, as businesses contend with uncertainty over Brexit negotiations and an inconclusive election result, alongside rising costs.
“These significant increases in financial distress also point to a slowdown in business investment at a time when the overall growth rate of the UK economy remains stubbornly sluggish.”
Julie Palmer, Partner at Begbies Traynor, added: “While we are seeing rising levels of distress across all corners of the UK economy, the quarterly deterioration in the property and construction sectors is particularly concerning, raising doubts over whether they have strong enough foundations to cope with upcoming headwinds, from Brexit and the rising cost of imported goods to the widening skills gap and its impact on labour cost inflation.
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Hide Ad“In the UK’s consumer facing industries, weak real wage growth and rising levels of personal debt continue to put a strain on the retail, bars, restaurants and leisure sectors, where many businesses have been reluctant to fully pass on the inflationary impact of the weakened pound and higher staff costs from the National Living Wage, for fear of losing customers on price in an increasingly competitive marketplace.
“As the second half of 2017 begins, it’s worrying that so many businesses, particularly SMEs, are facing such instability. These businesses, which are the backbone of our economy, need to be as robust as possible to fuel the UK’s growth post-Brexit, yet these figures indicate that many will struggle to fund increases in working capital and invest in growth.”