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Businesses in distress, in decline

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The Association of Business Recovery Professionals, R3, reports that levels of business growth and business distress have remained at record highs and lows respectively.

Research has found that 68% of businesses are showing ‘one key sign of business growth’ compared to 38% showing at least one sign of distress. These findings come at a crucial time in the recovery of the economy as we await an imminent interest rate rise.

Despite good economic growth so far, particularly in the first quarter, a rise in interest rates too early in the recovery process will be damaging as the economy is not quite as secure as it has been reported.

R3 president Giles Frampton said: “Businesses need to be on the lookout for any signs that they are over stretching themselves…Sales, profits and business expansions may be on the up, but if a business runs before it can walk then problems can arise”.

Coinciding with the report from R3 is a survey by the British Chamber of Commerce (BCC) into the impact that an early rise in interest rates would have on UK businesses. A survey of 7,000 companies showed that the rate of growth had slowed in April and June compared to the earlier months in 2014. The BCC said that this was to be expected given the sudden “jolt forward” in growth earlier this year.

The index measuring the UK economy’s largest sector, the services industry, has shown a slip in growth figures from an all time high in the beginning of 2014. These results are the reasons behind the BCC pleading with the Bank of England not to make the mistake of hiking up rates through hasty decision making.

In addition, R3 are worried about the prospect of the difference in performance between regions of the UK. Frampton commented: “34% of businesses in the South and 30% of businesses in the Midlands reported at least one sign of distress, rising to 43% in the North”

He added “While it is good to see growth continuing in all of the UK’s regions, Westminster needs to bear in the mind the fact that the South is pulling further and further away from the rest of the country in terms of economic performance”.

During a period when growth is still fragile for many companies, an additional rise in interest rates will be damaging. John Longworth, director at BCC, said: “By driving up the cost of credit for fast-growing firms, many of whom do not sit on the same healthy cash pile as their more established counterparts, early rate rises may mean more limited growth ambitions amongst the firms we are counting on to drive the economy.”

If you are worried about your finances or the impact that a possible interest rate rise may have on you or your business then you should seek specialist advice. Stephensons can provide advice and assistance through such difficult periods.

By Nicola Whittle, Insolvency solicitor

 

 

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