North East business recovery reflects national upturn

North East businesses are keeping up with the rest of the country by continuing to improve their recovery in the first quarter of 2013.

Ahead of the release of the latest GDP figures this week, the recent Begbies Traynor Red Flag Alert research for the quarter shows that companies in the region with ‘critical’ problems has decreased by 27% compared with the same period last year.

With just 107 ‘critical’ companies, suffering issues such as CCJs and winding up petitions, compared with 146 last year the level is close to the national average of a 34% fall year on year.

The survey has also reported that the region’s consumer economy was starting to recover, with distress in general retailing falling from 15% to 8% and bars and restaurants also seeing a slight decline.

The survey by leading business rescue and recovery specialist Begbies Traynor monitors a series of indicators of company distress.

Andy Haslam, partner of Begbies Traynor in the North East, said: “The overall year on year improvement highlighted in the latest Red Flag analysis both nationally and in the North East reflects the continued forbearance and benign monetary conditions facing UK businesses today, combined with an improving credit environment, albeit primarily for larger corporates.

“Business confidence is slowly returning in the form of greater business spending on both services and investment1.”

However, the recovery remains patchy with some sectors still struggling, in the North East construction sector businesses in critical distress went from 16% in the last quarter to 24%.

When comparing the Red Flag data on a quarterly basis, the national statistics reveal an 8% increase in critical financial distress from 3,044 in Q4 2012 compared with 3283 in Q1 2013.

The North East saw a 13% increase from 95 companies with critical problems in the last quarter of 2012 to 107 companies in the first three months of 2013.

Andy Haslam said: “There is greater Government support for the house building sector and first-time buyers, which, combined with improving credit conditions from the banks, we hope will have a positive impact, creating a new generation of home-buyers who previously were constrained to the rental market

“The property management companies, lettings agents and landlords who fuel the real estate sector are also facing problems with recent reports of higher repossession rates and increased levels of tenants in severe arrears indicating that landlords and agencies who had benefitted from the boom in the buy to let market are now facing the stark realities of the continued pressures on household finances.

“The underlying trend in the region is arguably one of an improving picture, however, given the slight increase in distress compared to the previous quarter, it remains to be seen if we are out of the woods yet.

“With business rate increases planned in April, HMRC’s new PAYE Real Time Information requirements coming into effect, and further minimum wage rises ahead there are still significant headwinds on the horizon, with the UK SME sector typically less able to bear the burden of these changes than their larger counterparts.”

Begbies Traynor’s analysis of new lending to business across its Red Flag database, which is predominantly SMEs, found that the number of companies that secured new funding, at 15,804 in Q1 2013, was down 14.5% from 18,943 companies in Q1 2012 and down 11% from 17,823 in Q4 2012.

Mr Haslam said: “The 27% fall in distress levels in the North East is another welcome sign ahead of this week’s GDP announcement and indicates that the economy may have finally turned a corner, even if only to historically low levels of growth.

“The on going lack of funding to the SME sector, which is the lifeblood of any developed economy, remains the greatest obstacle to a stronger and sustained recovery.”

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