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 - despite the weak Pound making UK exports more attractive to international buyers.
Of the UK manufacturing sub-sectors covered by the research, Food & Beverage Production experienced the largest increase in businesses suffering from ‘Significant’ distress - up 29% year-on-year -, followed by the broader manufacturing sector (21%) and the automotive sector (17%).
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, said: “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.”