LONDON (Alliance News) - Begbies Traynor Group PLC, the AIM-listed corporate rescue and recovery company, on Friday warned that thousands of UK manufacturers which rely heavily on exports "could be tipped over the edge" in the event that the country votes to leave the European Union.
Even with the pound falling 7.5% against the euro and 4.0% versus the dollar to date in 2016 boosting exporters, Begbies warned that the UK's largest exporting industries are suffering from "rising" financial distress. The research comes ahead of the UK's June 23 referendum on whether to remain in the EU or leave.
Begbies' Red Flag Alert, which measures corporate distress, found that 21,061 UK manufacturers ended the first quarter in a state of "significant" financial distress, a 20% increase on the corresponding three months a year earlier, even though sterling's weakness made UK exports "more attractive" to international customers.
"Our data shows that the UK's exporting industries are already under significant financial pressure and can ill afford any potential risk to the 50% of British exports that go into the EU," Julie Palmer, a partner at Begbies Traynor, said.
Of the UK manufacturing sectors covered by the research, the number of food and beverages production companies experiencing "significant" distress rose the fastest, at 29%. That was followed by a 21% increase in the broader manufacturing sector and a 17% increase in the automotive sector.
"The Red Flag manufacturing figures show that the threat of uncertainty surrounding the referendum has already put the brakes on this segment of the economy, which should be accelerating with the benefit of recent sterling weakness, with many UK firms adopting a 'wait and see' approach to any change to the UK's relationship with the EU," Julie Palmer, partner at Begbies Traynor, said in a statement.
The research also singled out UK financial services, claiming the sector is in a "substantially weaker" financial position compared with the same stage a year earlier.
The number of UK financial services businesses suffering '"significant" financial distress is up nearly a quarter at the end of the first quarter, reaching 5,391 companies, the research found.
"The current weakness in the UK's manufacturing industries and financial services sector doesn't bode well for the UK's negotiating power with Europe and indeed other potential trade partners, should Brexit become a reality. If we do leave, the process of agreeing new trade agreements is likely to be a long and drawn out process, so businesses should, in that situation, prepare for the long haul," Executive Chairman Ric Traynor said in a statement.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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Begbies (BEG)