The proportion of North East firms with a raised insolvency risk is continuing to rise in nearly every part of the regional economy, according to monthly research compiled by insolvency and restructuring trade body R3.
Companies in ten of the 11 key industry sectors that R3 monitors have seen their business stability rankings fall in the last month, with only the North East agriculture sector managing to hold its own.
Over the last six months, all 11 industries have seen the number of firms at greater than normal risk of insolvency rise, with the North East professional services sector registering a 6.6 percentage point increase between May and November.
Almost two-fifths (38.7%) of regional IT businesses currently have a raised risk of getting into financial difficulty in the next year, compared to 33.1% back in May, while the proportion of professional services firms in the same position has risen from 30.6% to 37.1% over the same period.
Elsewhere in R3’s research, regional firms in six of the 11 key industries that it monitors currently have a worse rate of business stability than the national average for their respective sectors.
As might be expected in the lead-up to Christmas, the region’s hospitality industries are outperforming their regional peers, with both the pub and restaurant sectors recording the second best performances in the UK in terms of business stability, and the hotel sector coming in fifth in its list.
But the North East manufacturing, retail, professional services, construction and technology sectors all currently have lower levels of business stability than their respective national industry averages.
Overall, 31.1% of all North East businesses have a heightened risk of entering insolvency in the next year, which is almost the same as the cross-sector national average of 31%, but is five percentage points up on where it stood six months ago.
R3’s insolvency risk tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.
Neil Harrold, chair of R3 in the North East and a partner with Hay & Kilner Law Firm, says: “With the latest Insolvency Service figures showing a 15% year-on-year rise in the number of corporate insolvencies across England and Wales, these latest regional figures probably aren’t too surprising, but that doesn’t make them any less concerning.
“Regional firms have faced a number of fresh challenges over the last year. Increasing input costs caused by post-referendum inflation increases and a weaker pound, a rising national living wage, the added costs of pensions auto-enrolment, and, for some, rising business rates will have hurt bottom lines.
“The recent quarter percentage point interest rise shouldn’t be too big a factor when taken in isolation, but the very real prospect of future rate rises in an uncertain economic climate will be very unwelcome among owner/managers who are already struggling to meet existing costs.
“It would be incorrect to say that everything is doom and gloom, and the continuing resilience of the hospitality sector in what is its busiest time of the year is good news, while the construction industry is continuing to slowly make up ground on its peers around the country.
“With the regional picture remaining variable in terms of business stability, business owners need to retain a clear view of their financial positions, so they can act quickly to rectify any problems as soon as they become apparent.”