Rise in firms facing difficulty

A steep rise this year in the number of businesses at risk of going bust has fuelled fears that Britain faces a tougher year than expected with more insolvencies and higher unemployment than predicted by the government.

Insolvency experts Begbies Traynor claims the number of companies experiencing significant or critical financial distress rose by 14% in the first three months of the year to 160,000, the Guardian reports.

A sharp increase in the number of creditors demanding payment combined with the slow growth in the economy accounted for much of the rise, the firm said.

Predictions that interest rates would start to climb this year had also undermined many survival plans and companies with large debts would find it increasingly hard to stay in business.

Recovery of debts

Ric Traynor, chairman, said: "The magnitude of the liabilities still at risk of default represents a serious risk to creditors, indicating the potential far-reaching impact of these levels of distress. It is this ripple effect that represents a real threat to a sustained economic recovery.

"Faced with these risks, and a growing need to bolster their own funding for the recovery phase, trade creditors are increasingly seizing the opportunity to take action against their debtors in order to raise much needed working capital.

“This shift heralds a new phase in the cycle, putting businesses experiencing financial problems at greater risk of failure."