Recession fears as Scottish businesses see 20 per cent growth in financial distress levels - Begbies Taynor

The firm’s quarterly ‘Red Flag Alert’ data shows a 20 per cent year-on-year rise in the most common indicators of business distress in January, February and March of 2016, when compared with the same period a year earlier. The rise was the same as the UK average, and only London (26 per cent) and Northern Ireland (21 per cent) showed a greater growth in distress.

In total, firms in Scotland showed 14,393 instances of business distress in the first quarter of the year. This follows a 17 per cent increase in the previously reported quarter, and means that relative levels of distress have rocketed in the last six months. The sectors hit hardest in Scotland were construction and property related businesses that accounted for 39 per cent of the total distressed firms.

“There is no doubt that Scotland’s businesses are having an increasingly tough time, and business confidence is nose diving as a result of a variety of factors. The oil and gas sector is struggling, capital investment decisions are on hold as the Brexit debate heats up, and the jittery global markets are all contributing to a generally gloomy outlook,” said Ken Pattullo, who leads Begbies Traynor in Scotland & Northern Ireland.

The less common instances of ‘critical’ distress, which include decrees totalling over £5,000 and winding-up petitions, peaked in the last quarter of 2015 after an 84 per cent quarter on quarter rise. Although they fell from 118, there were still 68 critical instances of distress reported in the first three months of the year.

“It is worrying to see the trends so broadly increasing year on year, and across so many sectors. Property and construction showed a big increase from the previous quarter, despite increased activity in the sector, which suggests that costs are high and margins tight. Whether the drag on investment that was the legacy of the devolution referendum, and now the same hiatus with the whole Brexit vote, will lead to a full scale recession, remains to be seen.

“It is a fact that investors and markets don’t like uncertainty, and there remains a great deal of that around at the moment, both politically and economically. A battered pound is hurting importers, and hasn’t appeared to significantly feed into increasing export orders, and the benefits of low fuel costs that helps some businesses is completely negated in this country by the massive impact on the oil and gas sector, and the knock on effects to the wider economy here,” added Mr Pattullo.