A sharp drop in the number of firms that are in financial distress has led to renewed hopes of an economic recovery, a new report from restructuring firm Begbies Traynor has confirmed.
The organisation’s red flag report – which tracks the early signs of financial distress among companies across the UK – showed that the number of businesses in a “critical” condition fell by 39 per cent to 3,001 between April and June of this year, compared to the same time period in 2012.
The number of companies in financial distress fell the most sharply across the construction, professional services, and financial services sectors. The manufacturing sector also saw a marked improvement.
Julie Palmer, partner at Begbies Traynor, confirmed to the Guardian newspaper that it was the “first real sign that the UK economy has turned a corner towards a sustained recovery”.
However, Ms Palmer did add that so-called “zombie companies” – those smaller companies that have managed to survive the recession but do not have the funding needed to make the most of an economic recovery – remain in danger of failing.
She told the Guardian: “We have real fears that many small and medium-sized enterprises will have serious financial difficulties at the time they least expect – during a recovery. Our experience has shown time and time again that many SMEs run out of cash during the recovery phase, as there is a real temptation to overtrade.”
Official figures due to be released towards the end of this month are predicted to show that economic growth rose in the second quarter of this year to around 0.6 per cent, compared to the 0.3 per cent recorded in the first quarter.