Shropshire businesses facing increase in distress levels

Increasing stress on the construction sector in particular has driven a 27 per cent increase in the number of companies reporting significant financial problems between the third quarter of 2016 and the same period this year.

Analysis by accounting giant Begbies Traynor shows that 2,761 companies were in distress in the third quarter, compared with 2,180 between June and September 2016.

Of those, 428 were in the construction sector, while 235 were retailers and 535 were in the support services.

Mark Malone, partner at Begbies Traynor's Birmingham office, 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, perhaps taking more risks because of continued low interest rates.

"Following the latest economic updates, showing everything from rising inflation and slumping retail sales to the further decline of the construction sector, our data suggests that almost all sectors and industries have been adversely affected.

“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, our biggest concern is the UK’s ever-expanding consumer credit bubble, which could burst at any time."

Across the Midlands as a whole there were 54,866 firms in significant distress – up 25 per cent from 44,007 for the same quarter in 2016.

Shropshire's figures were consistent with the second quarter of the year, when 2,743 business were in significant distress.

Every sector assessed by Begbies Traynor's figures in Shropshire showed an increase in the number of companies in distress, compared with a year ago.

The firm said this month's interest rate rise may present a cause for concern among companies which are already in distress.

With more companies leveraging cheap rates to help boost their business, and others such as retailers boosted by low interest rates supporting consumer spending, Begbies Traynor has warned that the shallow rise to a base rate of 0.5 per cent could lead more businesses into difficulty.

The professional services, real estate and telecommunications sectors in Shropshire all saw more than 150 businesses in distress in the third quarter.

The Shropshire businesses assessed as being in distress – using a methodology around county court judgements and credit risks – were all SMEs.