Businesses feel the chill as economic growth cools

By October 27, 2011Finance, News

Conditions are getting tougher for North West businesses with nearly one in three reporting a drop in sales and almost two in three seeing decreased profits, according to insolvency trade body R3.

R3’s latest Business Distress Index shows that talk of a business-led recovery is premature. It reveals that 79 per cent of businesses in the region are showing at least one sign of distress – the highest levels since the end of last year.

 

Overall, businesses in the North West – along with those in Yorkshire and the North East – fared worse than those in the rest of the country. Sixty-one per cent per cent of North West businesses reported decreased profits, whilst 29 per cent said they were experiencing falling sales. However only five per cent reported cash flow problems or difficulty in paying suppliers, while nine per cent said they were using their maximum overdraft facility fairly frequently – in each case, less than half of the national average.

 

Jeremy Oddie, chair of R3 in the North West and head of recoveries at Mitchell Charlesworth, said: “Business distress levels have been falling during the first two quarters but it’s clear that things have now taken a turn for the worse. This worrying trend mirrors the slowdown in GDP growth last quarter.

 

“Businesses are not out of the woods yet. While current stresses might not be enough to push them over the edge, prolonged periods of distress will trigger an increase in formal insolvencies. The first few years after a recession are traditionally difficult for businesses, as they need time to rebuild their reserves to support expansion.”

 

On the other hand the research, carried out during September, found some positive signs of growth. Thirteen per cent of businesses in the region said they had recently increased turnover and 10 per cent had increased profits. Other key indicators of health remained low, with only three per cent having increased export orders and only two per cent having increased their workforce.

 

Jeremy added: “The private sector has some way to go before it can deliver the kind of expansion the Government yearns for to drive the economy forwards. While there are some encouraging signs, important measures such as increasing exports and increasing employment register poorly.”

 

 

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