Birmingham businesses face a stern test this winter as the cold wind of a continuing recession blows through the Midlands economy.
That’s the verdict in the latest Begbies Traynor Red Flag Alert, the quarterly report which monitors a series of indicators of company distress.
The Midlands region has seen a 56 per cent increase in critical problems in the third quarter compared to the same quarter last year.
Birmingham in particular saw a significant increase of 216 per cent in the same quarter.
John Kelly, regional managing partner at Begbies Traynor’s Birmingham office, said: “The statistics reflect the growing uncertainty facing many businesses in the Midlands and in particular in the Birmingham area.
“The national picture identified a growing north-south divide in the levels of business distress and evidence of the impact of public sector cuts starting to hit home.
“There has been a material increase in problems in the past quarter across the North East, North West, Yorkshire, the Midlands, the East of England and Wales compared to decreasing distress in London and the South East, according to the figures released today,” he said.
Against a UK average rise of two per cent, the number of businesses facing both significant and critical financial distress in the past quarter dropped by six per cent and three per cent respectively for London and the South East, while all other regions in England and Wales faced increased levels of distress.
Hardest hit was the beleaguered North East with a 19 per cent increase in business distress, followed by the North West with a 12 per cent rise. Yorkshire, the Midlands, Wales and the South West regions all saw increases in business distress of ten per cent.
In Scotland, where public sector cuts have come much later than in the rest of mainland UK due to the timing of the Scottish elections, levels of distress have fallen quarter on quarter, but the impact of recent and expected future cuts will not be felt in wider business distress for some time.
Ric Traynor, Executive Chairman of Begbies Traynor Group, said: “As the threat of public sector job cuts became a reality in the past few months, a North-South divide has begun to emerge with the South East and London areas showing much greater economic resilience than the rest of England and Wales.
“Many of the regions worst affected – such as the North East and North of England – are heavily dependent on the public sector so it is telling that these areas are witnessing increased levels of financial distress.
“The UK is seeing widely varying regional distress levels as a variety of sectors see polarised levels of hardship. It is not surprising then, that we will end up with different areas seeing tougher economic times than others, especially where the public sector has historically been most important.
“Figures recently published by the ONS show that the second quarter of 2011 saw the number of public sector employees fall by 111,000 – the biggest fall since records began in 1999. This reduction in the employee base not only affects those individuals who have lost their jobs, but also local businesses dependent on public sector contracts.”