The North East saw a significant rise in the number of "critically distressed" businesses in the final part of last year, a new report has shown.
Research from Begbies Traynor shows that in the fourth quarter of last year there was a 50% year-on-year increase in the number of firms classified as in advanced distress, with county court judgements of more than £5,000. The region outstripped the UK average which showed a 36% year-on-year increase.
At the same time, some 11,800 North East firms were said to be in earlier stage "significant distress", which includes having county court judgements of less than £5,000 served against them. That number was unchanged from the quarter before and up 4% compared with the same period in 2021.
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Among the sectors most affected by early stage financial distress were printing and packaging, up 36%; real estate and property, up 20%; financial services, up 14%; telecomms, up 12%, and automotive and utilities, both up 11%. The wholesale, travel and tourism, hospitality, food and drug retailing and sports and health club sectors saw drops in significant distress.
Andrew Little, partner at Begbies Traynor in the North East, said: "Unfortunately, despite some stronger than expected Christmas retail sales, economic prospects for the year ahead look bleak as spiralling prices and business costs continue to curtail recovery and the UK prepares for at least a year-long slump. The recent announcement by the Government that, from April, support will be cut to most businesses for their energy bills, will further add to the pressure of declining consumer confidence as people tighten their belts.
"This drop in demand is likely to cause widespread and serious financial problems, particularly for smaller businesses, across the North East and beyond.”
Meanwhile, separate research from the Institute of Turnaround suggests there are nearly 30,000 businesses across the North in distress. The report points to a continuation of inflationary and labour shortage headwinds for firms in 2023.
Andy Leeser, chairman of the IFT, said: "The North is one of the UK’s economic powerhouses and our latest figures reveal that it has proportionately fewer businesses in need of turnaround support than the likes of London and the South East, Wales and the West of England. Nonetheless, our latest figures suggest that manufacturing – one of the North’s traditional strengths - and automotive sectors will actually be among the busiest for our members in the year ahead. In part this will be driven by a growing range of supply chain challenges.
“The directors behind UK businesses large and small, having risen to the manifold challenges of the Covid-19 pandemic and associated lockdowns might have expected a period of calm to recover and rebuild. Instead, firms have found themselves faced with multiple new challenges. A cost-of-living crisis is hitting consumers, whilst a cost of doing business crisis is combining with pre-existing stresses to put a great deal of pressure on UK PLC.”
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