Election uncertainty stalls business growth as investment dries up

Latest Red Flag Alert Report for Q1 2015

Financial distress levels plateau as UK businesses hold back growth until after election

Businesses across the UK have battened down the hatches since the start of the year, holding back investment for growth and initiating recruitment and pay freezes as they await the outcome of May’s General Election, resulting in a state of stagnation across all areas of the economy, warns business recovery specialists Begbies Traynor.

According to Begbies Traynor's Red Flag Alert research for Q1 2015, which monitors the financial health of UK companies, levels of ‘Significant’ financial distress fell just 1% over the past three months to 227,993 businesses (Q4 2014: 240,685), while levels of more severe ‘Critical’ distress increased slightly by 4% to 2,461 failing companies (Q4 2014: 2,362); the first increase in this category since Q2 2014. 

London was the only region to experience any real improvement in financial distress levels over the period, with ‘Significant’ distress falling 4% in the quarter to 36,788 businesses (Q4 2014: 38,141), compared to a flat picture across the rest of the country.

Julie Palmer, Partner at Begbies Traynor, said:

“Concerns over the outcome of the most uncertain election in a generation have led to a state of stagnation across all sectors of the economy, as swathes of UK businesses guarded against the worst case scenario by postponing their growth plans until after the results have been announced.

“With economic forecasters predicting that elevated political uncertainty would result in subdued consumer confidence, sharp swings in the value of the pound and rising volatility in the equity markets, many business leaders took the decision at the start of the year to cut back on much needed investment, new hires and pay increases to provide a buffer in the event that trading levels subsided.”

Ric Traynor, Executive Chairman of Begbies Traynor Group, concluded:

“In reality the election has had a minimal impact on trading volumes so far, suggesting that many businesses may have missed out on significant growth opportunities over the first quarter by being overly cautious. But as the election draws nearer, levels of political uncertainty are finally catching up with expectations and it is now too late in the day for businesses to revert back to growth mode. 

“With little separating the two main parties in the polls, the likelihood of an inconclusive result on 7 May is higher than ever. If so, this could result in the formation of a new coalition, the drafting of an emergency Budget and potentially an additional month of uncertainty, therefore restricting new investment until June or beyond and putting the economy and UK businesses at risk of slower growth.”

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