2,000 Preston businesses face financial hardship
The Red Flag Alert research, which monitors the financial health of UK companies, says the figure is a 17 per cent increase on the same period last year.The industrial sector is the worst affected, increasing 61 per cent. Leisure and culture firms experiencing ‘significant’ financial distress also rose, with 50 per cent of companies struggling.
Support service companies and construction firms had the highest volume of businesses in ‘significant’ financial distress, with 419 and 294 respectively experiencing difficulties over the past quarter.Begbies Traynor warned 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, may see some organisations across the region struggle to survive.
Ian McCulloch, insolvency director at Begbies Traynor in Preston, 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 Preston 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 Preston businesses with high levels of debt could be severe.”
The Red Flag Alert data also revealed that 450,000 businesses across the UK were suffering from ‘significant’ financial distress, up 27 per cent compared with the same period last year.Ric Traynor, executive chairman of Begbies Traynor, said: “Despite the IMF slashing the UK’s economic growth outlook on account of the weak pound and spiking inflation, UK GDP has continued to increase ahead of expectations over the past three months. With this representing the 19th consecutive quarter of GDP growth, the prospect of an interest rate hike this week seems all the more likely, which will be worrying news for many firms who have been relying on low rates to keep their heads above water.
“Regardless of whether interest rates rise or fall on Thursday, there is also a distinct trend emerging among personal services companies, who seem to be contributing more than their fair share of distress across multiple sectors of the economy. “Following HMRC’s crackdown on these businesses, many personal service companies are finding trading conditions particularly tough under the new regime. As a result, it is likely that we will see a trend of increasing insolvencies among this group, putting added pressure and costs on the larger companies and sectors that they serve.”