Don’t believe the hype! The UK economy isn’t as bad as the headlines suggest

Following on from the latest Red Flag report from leading insolvency firm Begbies Traynor, market analysts Plimsoll have assessed the long-term health of UK Plc. Our analytical team was set a simple question, “Is it really as bad out there as reports suggest or is there cause for optimism?”

For those readers not among Plimsoll’ thousands of clients, we specialize in providing early warning of looming issues in a company’s financial data. Our unique model of analysis has rated nine out of ten companies that are currently in administration as Danger a full two fiscal years before their demise. We sound the alarm of trouble ahead in time for clients to take remedial action on their own frailties or, increasing to prepare themselves to pounce when competitors get into trouble.

Based on Plimsoll’s proven graphical model of analysis we help clients to predict the likelihood of insolvency for millions of companies in thousands of markets around the world. Insolvency Practitioners pick up the pieces of failure. Plimsoll provide early warning to avoid failure.

We have recently launched the first Quarterly Health Check of 2024 and we are delighted to say that the picture is far from the gloomy one painted in recent weeks. Below are the top-level findings from Plimsoll’s assessment of over two thousand individual British markets and the millions of companies that operate in them:

It is official! The sky is not falling in on the UK economy.

Despite the salacious headlines of recent weeks, the number of companies in financial distress is little changed from a year ago.

The Plimsoll Model allows us to take complex financial data and produce a graphical health rating on any company – large or small. We rated a company as Strong, Good, Mediocre Caution or Danger.
Those rated as “Danger” must make changes to their financial health to stop a smaller issue growing into an existential crisis. An injection of shareholder capital is usually enough to rebalance the financial health of a company. Sadly, many seek to borrow more to turn short term debt into long term which buys decision makers additional time but does nothing to recapitalize the business. Eventually all companies run out of road.

The 2024 Plimsoll Quarterly Report shows only a very marginal increase from a year ago. 23% of British companies were rated as Danger a year ago. This has ticked up only marginally to 24%.

More interestingly, the increase in Danger ratings has come from the Caution category of rating – the second worst rating. This indicates that companies already struggling with financial issues have seen them worsen rather than otherwise healthy companies getting sucked in. The percentage of companies rated Caution or Danger has remained static at 36%. Still too many but no increase at all on the same time last year.

Is it the same around the whole country?

As always across the UK, the picture differs significantly by region. For the third year running, Northern Ireland and Yorkshire have the lowest number of companies rated as Danger. Northern Ireland also has the highest instance of companies rated Strong, with Yorkshire second.

Conversely, London, the powerhouse of the UK economy, has the highest number of endangered businesses and the lowest percentage of strong companies, with the wider South East faring little better Are the exorbitant costs associated with the South East making it increasingly difficult for anything other than international financiers to turn a profit?

Will London complete its metamorphosis towards becoming exclusively a knowledge-based service economy, gentrified towards international wealth and with tourism, Big Tech, and global finance the main revenue generation engines?

The economic agenda for 2024 and beyond would be best spent increasing support to encourage “Next Gen” manufacturing industries in regions with the lowest cost base? The next government, of whatever persuasion certainly needs a fully joined up industrial strategy to configure the whole country towards future growth to protect Britain’s international relevance.

In summary

If you read only the headlines of articles such as those on the Begbies Traynor Red Flag Report, one would conclude the sun has set on the UK economy and we are all heading for a bleak, dystopian future. But the analysis does not really support that view. Of course, operating a manufacturing business in London or the wider South East is increasing financially improbable but there is more to the UK than one region.

Further trade barriers such as the new import changes because of Brexit that came into effect on 31st January 2024 will significantly damage British business trading with the EU, particularly in the food and horticultural sectors. Those increased costs and complications could well push the inflation needle higher again delaying the easing of monetary policy. The next government, of whatever party, faces significant crossroads.

Whatever industry you operate in, the need to understand the position of your company and how it compares to its rivals and industry KPI’s are the only thing you can control. Plimsoll makes this benchmarking exercise instant and hassle free. We believe you should spend more time on decisions and less on compiling insights and analysis.

Please visit www.plimsoll.co.uk to find out about the analysis we have produced on your company, your industry, and your rivals.