Thousands of firms face significant financial distress ahead of possible interest rate rise

 
Helen Cahill
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UK Prepares For Possible Interest Rate Increase
The Bank of England is expected to increase its base rate this week (Source: Getty)

Thousands of firms are facing significant financial stress ahead of a possible rise in interest rates this week.

According to research by Begbies Traynor, close to 450,000 businesses were under 'significant' levels of financial distress in the third quarter of 2017, a rise of 27 per cent year-on-year.

Around 250,000 of those companies were so-called 'zombie' companies, which have only survived due to the low interest rate environment.

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Begbies Traynor said many of these firms will not have enough money to survive a rise in interest rates, combined with rising employment costs.

The Bank of England will publish its decision on interest rates tomorrow and it is widely expected to raise its base rate.

Businesses in the financial services industry have seen the steepest rise in distress over the past year, with the number of firms under 'significant' stress rising by 46 per cent to a total of 26,113. The number of professional services firms in financial distress rose by 34 per cent to 11,079.

Support services firms were the worst affected by volume, with 101,614 businesses facing extreme financial problems.

Julie Palmer, partner at Begbies Traynor, said: "The number of firms experiencing 'significant' financial distress has reached unprecedented levels over the past 12 months as businesses in search of growth have overstretched themselves, taking too many risks after being lulled into a false sense of security by the continued low interest environment."

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