lloyds bank18 Jun 2019 17:21
Lloyds Banking Group LLOY
Real-time CHI-X EUROPE LIMITED. - 06/18 04:19:20 pm
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Lloyds Banking : Bank-BRITISH BUSINESSES SITTING ON GBP600BN THAT COULD BE USED TO FUND GROWTH
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06/18/2019 | 01:33 pm
British businesses could have GBP593bn tied up in excess working capital, putting pressure on cash flow at a time of uncertainty.
Trend driven by record levels of stockpiling in UK manufacturing sector.
Pressure hinders firm's ability to maximise investment and manage unexpected challenges or opportunities.
British businesses could have GBP593 billion locked up in excess working capital, potentially hampering growth and leaving them exposed to economic uncertainty, according to new research from Lloyds Bank Commercial Banking.
Ed Thurman, Managing Director of Global Transaction Banking at Lloyds Bank, said:
'While businesses tying up significant amounts of cash can be an indicator of confidence, against a backdrop of uneven growth figures across core sectors, we shouldn't be complacent.
'Our research confirms businesses are stockpiling as a precautionary measure, in the face of political and economic uncertainty, to ensure they are in a strong position to face into any potential challenges. Such a deliberate response to an ongoing situation can be risky as cash invested in inventory is rarely easy to release meaning firms are less able to invest in growth or respond to unexpected changes in demand.'
Working capital pressure most acute in manufacturing sector
The PMI data used as an early warning indicator in the Working Capital Index unveils overall pressure to increase working capital has remained relatively flat year-on-year, with a current UK reading of 104.9 (vs 104.6 in 2018)3.
Meanwhile, the reading for the manufacturing sector is at an all-time high of 130.7 (vs 111.0 in 2018)4. The UK's services and construction sectors measured readings of 99.8 and 107.7 respectively5.
A reading of more than 100 indicates pressure to devote more cash to working capital, while a reading of less than 100 indicates pressure to prioritise liquidity.
Lloyds Bank's Index found that nearly a third (29 per cent) of manufacturers cited stock build-up as their primary working capital concern, with businesses currently holding elevated stock levels which they plan to run down in the year ahead.
Regional variations
Firms in the East of England have the greatest relative opportunity to free up cash with nearly 11 per cent of total revenue currently tied up in working capital, having seen a 47% jump in inventory levels since 2015.
Those in London have the smallest relative opportunity (just over 5% of revenue), likely due to its weighting to the service sector, although even in London inventory levels grew 23% since 2015.
Notes to editors
1 Lloyds Bank Business Barometer survey was conducted with 1,200 companies between 1st and the 16th May 2019 from
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