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Fewer firms in financial distress 15 July 2013

The number of UK businesses in financial distress has dropped 39% in the second quarter of 2013 in the highest year-on-year decrease since the start of 2011, according to research.

Accountancy firm Begbies Traynor hailed a “significant turnaround in the health of the UK economy” in its latest Red Flag Alert report, which revealed that across all sectors businesses experiencing “critical” financial problems fell from 4,947 in the second quarter of 2012, to 3,001 in the same period this year.

The report, which monitors the financial health of “corporate UK”, showed that on a quarterly basis, levels of “critical” distress were down 9% from 3,283 in the first quarter of 2013.

The number of UK companies reporting a “significant” amount of financial distress reduced 18% year-on-year, from 216,396 cases in the second quarter of last year to 176,677 in the same quarter this year.

But Julie Palmer, partner at Begbies Traynor, warned that many small and medium-sized enterprises (SMEs) will face “serious financial difficulties” during a recovery.

She said: “Our experience has shown time and time again that many SMEs run out of cash during the recovery phase, as there is a real temptation to overtrade.

“Many of these companies at risk have been labelled as ‘zombies’ in the past but, with the majority having survived the worst of the recession, they are now chronically under-funded; benefitting from low interest rates and improving confidence but in desperate need of finance and, crucially, guidance to help them take advantage of the dawning economic recovery in an unfamiliar post-crisis market.”

Comparing by region on a yearly basis, the report found that all regions across the UK saw an improvement in levels of “critical” distress, with Scotland and the north east seeing the largest reduction, down 71% and 69% respectively.

When comparing the second quarter of 2013 with the first quarter, the north east, Yorkshire and Humberside and the East of England experienced the greatest improvement, with 21%, 18% and 14% declines in “critical” distress respectively.

Of those regions reporting a positive shift in the second quarter of this year, London reported the smallest improvement with a 1% reduction in “critical” financial problems.

Begbies Traynor said the figures suggested that other regions in the UK are catching up with London, which has been consistently bucking the trend since the financial crisis began.

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