Increasing economic pressure could push struggling businesses over the edge in 2017, an expert has warned. The impact of the weak pound and depressed oil prices could feed through into a rising number of firms becoming insolvent, with the warning signs being seen in a rising number of East Anglian companies in distress.
Insolvency firm, McTear Williams and Wood has published its regular index which shows a record level of businesses in distress - defined as those who are technically insolvent or close to it on their balance sheets. Despite this, the number of businesses going into administration remains fairly low, creating a disparity between those on the precipice and those falling off the edge.
Partner Andrew McTear said companies' currency hedging running out could create a tipping point. "I think in 2017 company failures will be more likely to increase than anything else," he said. "The exchange rate movement is significant and will create a change in the economic backdrop. "In East Anglia, particularly around Great Yarmouth, you have the depressed oil price [since 2014] and that is having a knock-on effect in the support industry around offshore oil and gas."
Mr McTear said the increasing number of distressed firms was partly down to low interest rates and creditors now calling in debts. He said: "Our distress index is showing that there are more businesses in distress in East Anglia than ever before but there is a growing divergence with the number of company failures. "That is suggesting that more companies are under pressure but that it is not translating into company failures."
Experts have also suggested banks are less willing to call in debts prematurely, mindful of the damage to their reputation since the 2008 financial crisis.
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8 February 2017