'˜Critical' distress levels on the slide in Scotland

The number of Scottish ­businesses facing serious financial hardship is falling, bucking the upward trend for the UK as a whole, new research has suggested.

The construction sector saw a sharp decline in critical distress levels. Picture: Cate Gillon

Firms north of the Border saw a reduction in the most serious signs of business distress during the first quarter of 2017, according to business rescue and recovery specialist Begbies Traynor.

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Its latest “Red Flag Alert” data shows that against a background of rising “critical” business distress across the rest of the UK – up 7 per cent year-on-year and 17 per cent since the previous quarter – Scottish companies reported significant falls.

Instances of critical business distress – indicators of the most serious problems including decrees totalling more than £5,000 and winding-up petitions – fell by 28 per cent year-on-year in Scotland and by 8 per cent since the final quarter of 2016. The continued trend of sharply reduced year-on-year critical distress levels in the construction sector (down 71 per cent), manufacturing (67 per cent) and bars and restaurants (67 per cent) were the main contributors to the fall in distress levels across the country.

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However, the report’s findings were not universally positive for Scotland, as the data also showed that instances of less serious but more common “significant” distress levels in the country rose by 5 per cent quarter-on-quarter, and by 6 per cent against the same period a year earlier.

It comes against a backdrop of conflicting evidence on the state of the Scottish economy. Official figures showed GDP contracting in the closing quarter of 2016, while the UK as a whole witnessed growth, sparking fears of a technical recession north of the Border – meaning two consecutive quarters of decline.

Recent business and industry surveys have painted a mixed picture for 2017. According to the latest Bank of Scotland regional purchasing managers’ index (PMI), Scotland’s private-sector economy saw activity “broadly stagnate” last month but with a brighter outlook moving into the second quarter.

Ken Pattullo, who leads Begbies Traynor in Scotland, said: “Any time we show positive trends and out-perform UK averages we have to welcome the news, but we are careful to make sure we put the trends into perspective, and there needs to be a balanced view here with awareness that the less serious signs of significant distress are still rising.

“The falls could also be partially attributed to the high levels of distress we saw in Aberdeenshire as the oil and gas sector has seen such hard times over recent years. It would appear that we could have seen the peak of distress in that sector, which is obviously welcome.

“Overall the supply chain in the UK is facing challenges from a weak pound and rising inflation, in particular in fuel and food costs, and there is no doubt that these ‘Brexit effects’ will keep impacting parts of the Scottish economy too.”

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