FEARS of a triple-dip recession were questioned today by the latest Begbies Traynor Red Flag Alert research which reported a 12% decrease in firms facing financial distress.
The figures for the fourth quarter in 2012 showed companies experiencing “significant” or “criticial” financial problems declined from 223,125 in the third quarter, to 196,636, which the report said indicates the first tentative signs of recovery for parts of the economy.
Begbies, which has a Liverpool office in Old Hall Street, monitors the financial health of ‘Corporate UK’ in its Red Flag Alert which is used by companies to assess the financial health of potential trading partners.
The latest Alert found substantial decreases in distress in the key sectors of construction and real estate led the overall improvement but were in stark contrast to a rapid deterioration in the financial health of consumer-facing industries, indicating the emergence of a twin-track economy.
It also identified that the number of HM Revenue & Customs petitions almost halved (down 43%) in the fourth quarter compared with a year ago, and were down 25% on the previous quarter in 2012, bucking the trend for 2012 as a whole in which HMRC petitions were up 23%.
There was also a reduction in the number and total value of County Court judgments (CCJ's) issued.
However, more businesses are now moving into insolvency procedures after fewer CCJs are accrued, reducing the numbers recorded by the Red Flag Alert figures, but indicating that the fragile position of those companies that are struggling is increasingly evident.
Julie Palmer, deputy regional managing partner of Begbies, said: “Our Red Flag figures demonstrate an improvement in the financial health of the construction sector, which we believe reflects the fact that those construction firms that have survived the crisis are now benefiting from improving margins on a lower cost base.
“It is also evident that some construction firms have purchased land banks at substantially discounted prices following the financial crisis which, combined with a material improvement in the sector’s output towards the end of 2012, are encouraging signs.
“In addition large infrastructure projects such as the construction of HS2 rail link should have a considerable positive impact on the sector in the medium to long term while, in the nearer term, the sector is benefiting from decreased competition since the onset of the crisis and continued creditor forbearance, with our analysis showing increased liabilities across the sector.”
She added: “In the real estate industry, a substantial surge in buy to let activity during 2012 – with buy to let mortgages reported to be up approximately 20% on 2011 – has driven a clear revival in the financial health of property management businesses, which account for a high proportion of this sector.
“The overall improvement in the construction and real estate sectors may also reflect an easing in the mortgage market, which has been much lauded as the main beneficiary of the Funding for Lending scheme, launched in August 2012.
“Although these sectors are typically the first to be hit in a recessionary environment, they are also usually the first to come out the other side, so this positive development could be a predictor of a slowly improving UK economy overall.”
Ric Traynor, executive chairman, said: “The 12% decrease in the level of distress across the UK is a welcome sign that some parts of the economy are moving back towards improved financial health, supported by continued low interest rates, a reduction in actions taken by creditors and their increased forbearance.
“However, the situation remains fragile, with a large population of companies still struggling to survive, let alone face the working capital funding challenges of a recovery. As such we would expect to see the usual annual peak in insolvencies in March.”
