Written by: Keith Tully
Published: 5th June 2017
Even a small rise in the cost of borrowing could force up to 80,000 UK companies out of business, according to new figures on the subject.
The insolvency and business recovery industry’s trade body R3 keeps track of how many British firms are close to their limits and is reporting a sharp rise in the number who are potentially vulnerable to financial crisis.
R3 reported last year that in September 2016 there were roughly 20,000 businesses around the country who feared they would be unable to pay their debts if interest rates were to rise but this figure is now up as high as an estimated 79,000.
Furthermore, the organisation’s numbers suggest that there are around 96,000 UK companies who are only paying off the interest on their debts and finding themselves unable to actively reduce their outstanding arrears.
Andrew Tate, a spokesperson for R3, has said that only paying off interest amounts isn’t necessarily indicative of financial distress but could be a sign that a company is surviving as a “zombie business” and one which is only able to remain solvent due to exceptionally low costs of borrowing.
Fears are that rising inflation rates could soon lead to the Bank of England increasing its base rate of interest, which R3’s figures suggest could subsequently make it impossible for a great many UK companies to stay in business.
“The research shows that there are tens of thousands of firms currently walking a very tight line,” said Mr Tate in a statement.
“Rising inflation may also lead to a double-whammy for struggling businesses: it may increase the chance of the Bank of England raising interest rates, and it would undermine the consumer spending that has driven the economy over the last year.”
R3 has said that the increase in the number of companies who might be an interest rate rise away from insolvency is the first recorded since 2014.
“UK firms have faced a challenging 2016 and early 2017: the sharp fall in the pound has made things difficult for importers, while a rising National Living Wage and the roll-out of pensions auto-enrolment have added to businesses’ running costs,” Mr Tate noted.