Member Article

North East 'not out of the woods yet' as research points towards rising distress

Business rescue and recovery firm Begbies Traynor has found an increase in the number of North East businesses experiencing early signs of distress, according to its latest Red Flag Alert data.

In the last quarter of 2016 ‘significant’ distress in the region increased in 18 of the 23 sectors surveyed, with the worst affected areas listed as wholesale (32% rise); transport (27%); media (21%); food and beverages (14%); and leisure (14%).

Overall, there was a 7% increase in instances of ‘significant’ distress in the North East quarter on quarter, however, the region performed slightly better than the national average which saw an 11% rise.

The only sectors which experienced improving fortunes since Q3 2016 were hotels (8% fall in significant distress); printing and packaging (5% fall); food and drug retailers (4% fall); telecommunications (4% fall); and bars and restaurants (1% fall).

In total, 5,706 businesses in the region showed ‘significant’ distress, in the last quarter of 2016. However, looking at the figures for the same period the previous year, it appears that ‘significant’ distress in the North East was static while it rose by 3% across the UK year on year.

In terms of ‘critical’ distress, the more advanced signs of financial problems, the North East has seen a 4% increase quarter on quarter, slightly better than the national picture with a 6% rise across the UK as a whole. Year on year, ‘critical’ distress fell by 23% in the region and by 11% nationally.

Gillian Sayburn, director at Begbies Traynor’s Newcastle upon Tyne office, explained: “While it is a relief that the UK economy has not suffered from the immediate recession predicted by many experts following the surprise outcome of the EU Referendum, these latest figures show that we are by no means out of the woods yet.

“Overall, we have seen increases in ‘significant’ distress across a widespread of sectors both in the North East and nationally since the previous quarter.

“As speculation continues about exactly what form Brexit will take, UK businesses will be impacted by the ongoing uncertainty, acerbated by changes in global trade following the US election, which may well result in a slowdown of the UK economy.”

Ms Sayburn continued: “With economists struggling to forecast the likely outcomes in these unprecedented circumstances, we would advise business owners to be cautious - while the UK economy has shown greater resilience than some had feared, rising inflation over the next year is likely to start to bite into consumer spending.”