(Press Association) The number of British companies in significant financial distress has jumped to nearly half a million as fears rise that an expected interest rate rise will push thousands over the edge.
The Begbies Traynor Red Flag report found that 448,011 firms were feeling the strain in the third quarter, up 27% from 352,552 in the same period last year.
Begbies is warning that the prospect of an interest rate rise this week, alongside increasing employment costs, will see many of these companies go bust.
Britain’s poor economic performance since the Brexit vote, the collapse in the pound, soaring inflation, declining retail sales, depressed consumer confidence and the construction sector’s slide into recession were all flagged as having hammered businesses.
Julie Palmer, a partner at Begbies, said: “The number of firms experiencing ‘significant’ financial distress has reached unprecedented levels over the past 12 months, as businesses in search of growth have overstretched themselves, taking too many risks after being lulled into a false sense of security by the continued low interest rate environment.
“My biggest concern is on the UK’s ever-expanding consumer credit bubble, which could burst at any minute, knocking the consumer industries and financial sector for six.”
Consumers have been loading up on cheap debt as their spending power and living standards decline following sterling’s sharp depreciation following Britain’s decision to quit the EU.
“While the prospect of an interest rate increase will of course go some way to addressing this, the knock-on effect for many struggling businesses with high levels of debt could be severe,” Ms Palmer added.