Almost 13,000 North East firms are battling the effects of business distress, as the region sees insolvency numbers creep upwards, latest data shows.
Like much of the UK the North East is continuing to see a marked rise in early signs of insolvency year on year, with support measures masking wider distress.
Those are the findings of the latest Red Flag Alert data published by business rescue and recovery specialist Begbies Traynor, which found that levels of ‘significant’ or early signs of distress in the North East rose by 24% in the second quarter of 2021 compared to the same period last year.
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Begbies Traynor also fears the full extent of the problems may be even more pronounced, but is currently being artificially suppressed by the Government’s ongoing business support measures, together with the pragmatic approach of lenders and HMRC.
The quarterly Red Flag Alert research, which monitors the UK’s financial health, found a similar picture nationally, with the UK as a whole also seeing a 24% rise.
In Q2, almost 13,000 businesses in the region and 650,000 businesses across the whole of the UK, felt the impact of this type of distress.
However, the figures also showed some levelling off of financial problems with instances of ‘significant’ distress in the North East falling by 10% since Q1 2021, in line with the UK-wide picture which also saw a 10% decrease since the previous quarter.
Gillian Sayburn, partner at Begbies Traynor in Newcastle, said: “While we are concerned to see rising levels of early signs of distress compared with last year, both here and across the UK, it is even more worrying to know that, after 18 months of lockdowns and disruption, the real extent of financial problems is probably worse than these figures indicate.
“Although it appears to be good news that we have not seen the deluge of insolvencies widely expected post-pandemic, the relatively low numbers of business failures in the first six months of 2021 may well hide a picture of growing distress.
"It seems that the extension of the Government’s Covid support measures, together with a supportive lending environment, are enabling firms to continue to trade, but the underlying financial issues they are storing up are likely to emerge once this supportive environment disappears.”
The Red Flag Alert data also shows that every one of the 22 sectors surveyed in the region saw ‘significant’ distress increase year on year.
Among those worse affected were utilities (up 38%), real estate and property (37% rise), financial services (34% increase) and wholesale with a 36% uplift. The sector which performed most strongly was food and drug retailers with an increase of just 6%, followed by sports and health clubs, and media, up by 8% and 10% respectively.
In contrast, the North East also saw a 5% increase in the number of instances of the more advanced ‘critical’ distress – which refers to businesses that have had winding up petitions or CCJs totalling more than £5,000 against them – compared with the first quarter of the year. Across the UK, critical distress within firms fell 10%.
