Quarter of UK businesses say they are experiencing ‘distress’

FEWER companies are demonstrating signs of growth while the number of those recently experiencing at least one sign of distress is on the rise, according to new research by insolvency and restructuring trade body R3.

The research, part of a long-running survey of business distress by R3 and BDRC Continental, found that the number of companies reporting one or more signs of growth fell to 53% in September 2017, down from 64% in April and 62% in September 2016, and is the lowest figure since July 2013 (also 53%).

Meanwhile, firms which said they had experienced one or more signs of distress jumped to one in four (25%), up from one in five (20%) in April this year and 21% in September 2016. The record low for the proportion of companies reporting one or more signs of distress is 17% in December 2015.

“Decreased sales volumes” was the sign of distress reported by the greatest proportion of firms surveyed, at 12% – up from 7% in April 2017. Companies’ financial room for manoeuvre may be shrinking too, as 11% of firms surveyed said they were regularly using their maximum overdraft, up from 8% in April, and nearly three times the 4% of firms who were in this position in September 2016.

Louise Durkan, chair of R3 in Wales and director at Deloitte, said: “There’s been a very firm increase in distress levels over the last 18 months, alongside a drop in growth. UK businesses have moved on from record high growth levels and record low distress levels, and it looks like a new phase of the economic cycle has started.

“Many companies in Wales will have seen their fixed costs rise over the past year, whether due to an increase in the National Minimum Wage, higher fuel prices or the fall in the pound pushing up import prices.

“The Bank of England’s recent decision to raise the base interest rate to 0.5% could create further difficulties for Welsh businesses, especially after R3 and BDRC’s research in April found that 79,000 UK businesses would be unable to repay their debts if interest rates were to rise by a small amount.

“Due to the long period of stagnating wages and growing levels of household debt currently experienced across the UK, the latest interest rate rise could cause problems for indebted consumers in Wales as well, having a noticeable knock-on effect on local businesses that rely on their support.”

There is some room for optimism, however. Fewer UK firms are reporting decreased profits, with only 6% of respondents saying this was the case for them – the lowest proportion on record, down from 7% in April 2017, 8% in September 2016, and 36% all the way back in March 2012.

Companies which said they had had to make redundancies continued to make up a tiny fraction of UK firms, at just 2%, a figure which has remained steady since September 2016, and which fits in with official labour market statistics from the Office for National Statistics (ONS), showing the unemployment rate sitting at 4.3%, a level last seen in the 1970s.

Ms Durkan added: “While there are some positive signs in the local economy, it is crucial that businesses do not become complacent.

“For any businesses starting to feel overwhelmed, seeking advice from a fully licensed insolvency practitioner at the earliest opportunity will help to ensure the best chance for rescue and recovery.”