Increasing economic pressure could push struggling businesses over the edge in 2017, an expert has warned.
The impact of the weak pound and depressed oil prices could feed through into a rising number of firms becoming insolvent, with the warning signs being seen in a rising number of East Anglian companies in distress.
Insolvency firm McTear, Williams and Woods has published its regular index which shows a record level of businesses in distress – defined as those who are technically insolvent or close to it on their balance sheets.
Despite this, the number of businesses going into administration remains fairly low, creating a disparity between those on the precipice and those falling off the edge.
Partner Andrew McTear said companies' currency hedging running out could create a tipping point. 'I think in 2017 company failures will be more likely to increase than anything else,' he said. 'The exchange rate movement is significant and will create a change in the economic backdrop.
'In East Anglia, particularly around Great Yarmouth, you have the depressed oil price [since 2014] and that is having a knock-on effect in the support industry around offshore oil and gas.'
Mr McTear said the increasing number of distressed firms was partly down to low interest rates and creditors not calling in debts.
He said: 'Our distress index is showing that there are more businesses in distress in East Anglia than ever before but there is a growing divergence with the number of company failures.
'That is suggesting that more companies are under pressure but that it is not translating into company failures.'
It echoes the national picture where the number of firms facing distress has increased for the 13th consecutive quarter, according to Begbies Traynor.
Experts have also suggested banks are less willing to call in debts prematurely, mindful of the damage to their reputation since the 2008 financial crisis.
Tim Armstrong, of PwC in East Anglia, said: 'The message we hear from the banks is that they want to be lending more to business. There is a push from the challenger banks and the alternative lender community which means there is more competition than ever before. All lenders are looking to be more innovative in the way they lend.'
'It could turn quite quickly'
Andrew McTear, partner at McTear, Williams and Wood, said: 'Our business distress index shows a divergence between the lines for businesses in distress and business failures.
'It is part of a long-term trend and at some point you would expect the lines will intersect.
'It could turn quite quickly if the economic environment changes suddenly as it did in 2008 [at the start of the financial crisis].'
Mr McTear said that while he expected the exchange rate movement to have an impact it would take time for that to translate into insolvencies.
He said: 'It will definitely create winners and losers. It may take some time for that to be seen as companies may have prepared for it by buying currency, or it might take some time for the increased costs to trickle down. There is still a fair bit of uncertainty and some businesses may be able to go on for some time before they see an insolvency practitioner.'
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