Quarter of regional businesses would struggle with interest rate rises

The Northern Echo: Allan Kelly  R3's North East chairman Allan Kelly R3's North East chairman

ALMOST a quarter of regional businesses (24 per cent) say that they would be put into financial difficulty if interest rates were to rise by one percentage point in the next 18 months, according to a new report by insolvency trade body R3.

R3’s latest Business Distress Index found that seven percent of businesses in the North East, Yorkshire and Humberside felt their operations would be put into serious financial difficulty by a one percent rise in the interest rate before the end of 2015, with a further 17 per cent saying they would face some financial problems if this occurred.

One in five regional firms did however say that they would benefit from an interest rate rise of one percent, a figure that is significantly ahead of the seven percent national average.

The remainder of the regional firms surveyed (56 per cent) for R3’s latest Business Distress Index, which reports regularly on the successes and difficulties of hundreds of companies across the UK, said they wouldn’t be affected one way or the other by an interest rate rise.

Allan Kelly, chair of R3 in the North-East and a restructuring partner in the Sunderland office of Baker Tilly, says: “A one percentage point rise in interest rates is expected to be at the upper limit of increases in the next eighteen months, but policymakers should bear in mind that many businesses still feel they’re close to the edge of their comfort zone.

“Economic recovery is just as tough a time for some businesses to negotiate as a recession, if not tougher - insolvencies usually peak after a recession, but we haven’t seen that this time around, as record low interest rates and high levels of creditor forbearance have helped support lots of businesses.”

Research by R3 in November last year found that six percent of UK businesses (103,000 firms) could be classed as ‘zombie businesses’ i.e, those that only pay the interest on their debts, although this was down from nine percent (160,000) in November 2012.

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