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UK Retailers Face Insolvency, but Economic Prognosis Good

Nearly one-third of UK retailers could be facing insolvency in the coming year, according to recent research by insolvency firm R3.

Thirty-one percent of UK retailers have a higher than normal risk of entering an insolvency procedure–meaning they’ll be unable to meet debt demands in the next 12 months, the R3 report said. By comparison, 25 percent of all UK businesses have the same risk of failure, Just-Style reported.

Despite the number of retailers currently facing insolvency, R3 says the prognosis for UK business is generally positive, with the number of businesses in financial distress declining and growth indicators improving.

In R3’s latest Business Distress Index (BDI), the firm reports that the percentage of businesses experiencing one or more signs of distress–decreased profits, decreased sales volumes, regularly using the maximum overdraft, falling market share, redundancies–continued to decline, falling to 35 percent, from 40 percent in March 2013 and from 53 percent in June 2012.

R3 president, Liz Bingham said, “The falling levels of business distress are very encouraging, although we still have to play the waiting game on the growth indicators. These indicators may be up on where they were at the beginning of the year, but they are actually lower than they were a year ago. If economic growth is to be sustained, we will need to see improvement in the growth indicators in the coming months.”

Distress aside, just 20 percent of businesses reported experiencing decreased profits, continuing a declining trend after falling by seven percentage points from March 2013 and 14 points from June 2012.

Fifty-three percent of businesses reported at least one sign of growth–investing in new equipment, business expansion, increased sales, increased market share, increased profits–up from 47 percent in March.

Britain posted its first budget deficit since 2010 in July this year, but the UK’s chancellor
of the exchequer still felt the nation’s economy had moved from “rescue to recovery.”

The BDI found that small business disagreed with the chancellor’s assessment the most, reporting that 51 percent did not feel they were yet in recovery phase while just 35 percent of large business disagreed.

“This in part reflects the difference in trading conditions between the two, with smaller businesses still facing significant pressures. It may also reflect the confidence of larger businesses in their ability to ride out further economic bumps on the road to recovery,” Bingham said in the report.