The number of Cambridge businesses facing ‘critical’ distress levels fell by 53 per cent in the third quarter, year-on-year, according to the latest Begbies Traynor red flag alert. The wider East of England region follows the improving national trend with a 30 per cent annual decline in ‘critical’ distress levels.
However in the third quarter, the number of East of England businesses experiencing ‘significant’ levels of financial distress increased by 25 per cent to 17,443 – approaching the same level as a year ago.
Quarterly, however, there is a slowing trend, with businesses across all sectors in the region seeing a 9 per cent reduction from 256 in Q2 to 232 in Q3 in businesses facing ‘critical’ financial problems,. In Cambridge there was a rise in the number of businesses in ‘critical’ distress to seven, up from five in the previous quarter. Bars & restaurants and general retail saw quarterly reductions in businesses suffering ‘Critical’ distress.
Mary Currie-Smith, partner at Begbies Traynor in Cambridge, commented: “Celebrating a return to form, consumer-facing industries have seen significant reductions in ‘critical’ distress levels, both on a quarterly and an annual basis, following a strong summer of sales aided by the extended period of good weather across the country. With market sentiment improving and rising house prices giving homeowners increased confidence, consumer spending is proving to be the engine driving this recovery; good news for the consumer-facing sectors, which are so dependent on a positive Christmas trading period.”
“However, with pay growth still lagging behind inflation, this consumer-led improvement could have worrying consequences for the wider economy as new research from the British Bankers' Association suggests that this resurgence is being funded by a rise in household credit, which has increased for the first time in four years. With rising property values prompting still more consumers to increase borrowing, even amid fears of an imminent housing bubble, we are reminded of the boom years prior to the economic downturn of 2008, and hope that this is not a sign of UK consumers repeating past mistakes.”
Interestingly, the subdued summer trading within the UK’s core services sectors failed to have an impact in the region, with modest gains made in Professional Services and Support Services.
Nationally, professional services, financial services and support services all experienced significant increases in ‘critical’ distress levels during the last three months, rising 34 per cent, 28 per cent and 9 per cent respectively.
Significant problems
But during the third quarter, the number of East of England businesses experiencing ‘significant’ levels of financial distress increased by 25 per cent to 17,443 compared to 13,953 during Q2 2013; approaching the same level reported for Q3 2012, when 19,413 businesses were classified as ‘significant’.
Nationally, the number of businesses experiencing ‘significant’ levels of financial distress increased by 23 per cent to 218,128, compared to 176,677 during Q2 2013; close to the same level reported for Q3 2012, when 219,018 businesses were classified as ‘significant’.
Mary Currie-Smith added: “The past three months have shown a worrying spike in ‘significant’ distress levels across all sectors covered by the Red Flag Alert, which from previous experience is a consistent trend during this fragile stage of the economic recovery. Unfortunately SMEs are bearing the brunt as endemic late payments and higher costs of funding take their toll on smaller companies’ cash flows, thus adding further fuel to the fire of the UK zombie company problem.”
