Quarter of businesses in the North would struggle with interest rate rises, according to recent report

Almost a quarter of businesses (24 percent) in the North East, Yorkshire and the Humber 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 the Humber felt their operations would suffer serious financial difficulty if interest rates were to rise one percent rise in the interest rate before the end of 2015.

One in five of these 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 percent) 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’, meaning they only pay the interest rates on their debts. This was down from nine percent (160,000) in November 2012.

Allan Kelly continues: “The good news is that some businesses that might have expected to struggle after 2008 have been given extra time to put their finances in order, but there is still a big chunk of businesses that will struggle once ‘normal’ conditions, such as higher interest rates, return.

“An interest rate rise will have the biggest impact on ‘zombie businesses’ but given how consistent speculation about rate rises has been in the last few months, firms should already be planning ahead.”

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