TENS of thousands of firms are set to go bust when interest rates rise, taking hundreds of thousands of jobs down with them, business troubleshooting group the Institute for Turnaround (IfT) has warned.
There are almost 150,000 zombie firms in the UK – businesses that are fundamentally broken, and only still alive because ultra-low interest rates are holding down their debt repayments.
But while some firms may be able to restructure their debts and business processes to thrive in the long run, up to 50,000 are deemed “beyond hope” by the IfT, as they can barely pay interest on their debts, let alone repay the capital.
Firms of all sizes – from two or three-person operations to big businesses employing hundreds of staff – are zombies, meaning hundreds of thousands of jobs are going to be lost when rates rise at some point in the coming years.
“Between 25 and 30 per cent of these firms are beyond hope, and will fail when interest rates rise,” IfT chief executive Christine Elliott told City A.M.
“A lot of oversupply built up in industries like shipping and retail, and low interest rates have just postponed the inevitable – the recession still has to work its way through these sectors.”
However, Elliott did provide a glimmer hope to struggling companies. “If they restructure now, perhaps 10 per cent of these zombie firms could turn out to be stars,” she said.
She also warned that by stopping weak firms from failing, low rates also stop good firms expanding to help the recovery.