Levels of business distress in the UK are at a record low, with only a quarter (24%) of businesses reporting a key indicator of distress, according to the latest Business Distress Index from insolvency trade body R3.
Every indicator of distress tracked by R3 is at its lowest since the research began. 10% of businesses are experiencing decreased profits, 11% are experiencing falling sales volumes, 6% are seeing market share fall, 8% are regularly using their maximum overdraft, and 6% are making redundancies.
Phillip Sykes, President of R3, says: “Having stayed constant throughout 2014, UK business distress levels have fallen once more. Many companies will feel they have successfully negotiated the trickier parts of the rapid economic growth we saw last year. As growth slows, businesses are less at risk of over-extending themselves.
“The flip side of this is that signs of growth may start to become rarer as business growth hits a plateau.”
While the share of businesses (68%) experiencing at least one sign of growth returned to record highs, the share of businesses reporting individual signs of growth is dropping.
Phillip Sykes adds: “While the level of growth has returned to its peak, the pace of growth is weakening slightly. A higher number of businesses are seeing at least one indicator of growth but fewer are experiencing multiple growth signals.”
For example, the proportion of businesses investing in new equipment has fallen from 42% in October 2013 to 27% in April 2015.
Smaller businesses closing the gap with big business
Smaller businesses are recording the greatest drop in signs of distress. Only 20% of sole traders are reporting one or more signs of distress, compared to 50% in November 2014.
Phillip Sykes continues: “Although the largest businesses continue to experience the fewest signs of distress, it is encouraging to see difficulties for smaller businesses easing. It’s been a particularly difficult few years for many sole traders and they’re only now beginning to see recovery.”
Business confidence is strong with just 4% of businesses expecting their activity to decrease in the next year. 47% expect it to increase and 48% think it will stay the same.
“Looking ahead, businesses face a mixed picture. Although the likely date of an interest rate rise continues to be moved further into the future, a rise will come eventually. The Bank of England’s growth outlook remains solid but has been downgraded. And a referendum on British membership of the EU could cause uncertainty for business.”