Updated: 15th April 2016
Despite UK exporters experiencing a much needed boost in recent weeks thanks to the ongoing Sterling weakness, the UK’s largest exporting industries continue to suffer from rising levels of financial distress, which doesn’t bode well for the sector in the event of a potential Brexit, warns Begbies Traynor, the UK’s leading independent insolvency firm.
Begbies Traynor's Red Flag Alert research for Q1 2016, which monitors the financial health of UK companies, reveals that 21,061 UK manufacturers, many of which rely heavily on exporting, ended the first quarter of 2016 in a state of ‘Significant’ financial distress - 20% higher than the equivalent period last year (Q1 2015: 17,545) - despite the weak Pound making UK exports more attractive to international customers.
Of the UK manufacturing sectors covered by the research, the number of food & beverages production companies experiencing ‘Significant’ distress rose the fastest, at 29%, followed by a 21% increase in the broader manufacturing sector and a 17% increase in the automotive sector.
Meanwhile the Red Flag research shows that the UK’s financial services sector, which has significant exposure to the European financial markets and investment community, is in a substantially weaker financial position compared to the same stage last year. The number of UK financial services businesses suffering ‘Significant’ financial distress is up nearly a quarter (23%) at the end of Q1 2016 to 5,391 companies (Q1 2015: 4,383), ahead of a potential Brexit to which the sector has been much opposed.
With growing uncertainty surrounding the outcome of the Referendum vote in June, combined with concerns around what any future trade agreements with Europe will look like in the event of a Brexit, difficult questions have been raised over how a Brexit vote could impact the UK’s already struggling exporters and financial services industry.
Julie Palmer, Partner at Begbies Traynor, says:
“Our data shows that the UK’s exporting industries are already under significant financial pressure and can ill afford any potential risk to the 50 percent of British exports that go into the EU.
“The Red Flag manufacturing figures show that the threat of uncertainty surrounding the referendum has already put the brakes on this segment of the economy, which should be accelerating with the benefit of recent Sterling weakness, with many UK firms adopting a ‘wait and see’ approach to any change to the UK’s relationship with the EU.
“Considering the current struggles that the UK manufacturing industries are facing, as seen most starkly in the steel industry recently, and the significant potential impact of a Brexit vote, it is crucial that firms make contingency plans for either outcome of the Referendum to avoid further deterioration in their financial health.”
Ric Traynor, Executive Chairman at Begbies Traynor says:
“Given these figures, the impending threat of a potential Brexit raises difficult questions over how the UK’s manufacturing sector will cope with changes in regulation and protracted periods of uncertainty associated with negotiating new trade agreements, and how the UK’s financial services firms could withstand any loss of passporting rights, foreign investment or influence over EU regulation.
“The current weakness in the UK’s manufacturing industries and financial services sector doesn’t bode well for the UK’s negotiating power with Europe and indeed other potential trade partners, should Brexit become a reality. If we do leave, the process of agreeing new trade agreements is likely to be a long and drawn out process, so businesses should, in that situation, prepare for the long haul.”
Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.
Julie is a member of the Insolvency Practitioners Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.