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30% rise in firms collapsing

Failures rocket on back of Brexit uncertainty

Blair NimmoScottish business failures have rocketed since Britain voted to withdraw from the European Union.

Corporate insolvencies shot up by 30% from 177 to 230 in the last three months compared to the same period last year. 

Administration appointments, which usually involve larger businesses, increased by 42% from 19 to 27 and there was a 28% increase in liquidation appointments from 158 to 203, which tend to affect smaller businesses, over the same period.

The sharp rise in companies getting into difficulty is put down to the level of uncertainty, prompting firms to hold off making decisions, including orders.

Blair Nimmo, UK head of restructuring for KPMG, which compiled the figures, said: Business failures continue to rise amidst well documented challenges facing the oil and gas sector and as a result of sustained uncertainty caused by the EU referendum.

“While it would be easy to blame an immediate post-Brexit rise in insolvencies directly on the result of the vote in June, in reality the statistics are more reflective of the long-term impact uncertainty has had on the economy in the past 12 months or so.

“This is evidenced by the fact total corporate appointments from July to September actually fell in comparison to the quarter immediately prior to the referendum. A similar trend was seen in the lead up to and following the Scottish independence referendum in September 2014. 

“Even now, we remain in unchartered waters, and uncertainty will continue to influence and shape the business landscape. Nevertheless, overall confidence in the economy is high, and as our recent CEO survey findings reveal, business leaders are largely positive about the country’s future and of their businesses.”

A survey from Ernst & Young shows the value of UK M&A in the third quarter increased from the previous quarter, despite Brexit uncertainty.

Ally Scott, EY Partner and head of transaction advisory services (TAS) in Scotland, said: “UK M&A activity seems to have taken Brexit related uncertainty in its stride so far. 

“Businesses are getting accustomed to a period of sustained low growth, low interest rates and cheap debt. For M&A activity in Scotland this means there is an increasing number of businesses seeking funding for their growth plans. Private Equity funds are available and inbound investment remains attractive due to the decrease in the value of the pound.

“Overseas investors are interested in Scotland’s innovative businesses particularly in the FinTech and Life Sciences sectors where we can expect most M&A activity to take place in the year ahead.”

Wireline industryAccording to a survey published today by the CBI firms expect the pace of growth to pick-up in the autumn.

Rain Newton-Smith, CBI chief economist, said:While the economy has seen slight growth this month, firms are confident that autumn will bring a surge in activity.

“Exporters continue to reap the benefits of a weaker Sterling, but our services sector has not only felt a rise in uncertainty over demand, but also a drop in their sales volumes.

“With businesses keen to build momentum for the rest of the year and into 2017, they want the Government to outline clear plans for negotiations to leave the EU and deliver an Autumn Statement that will drive investment and deliver economic growth and prosperity.”

Scotland’s private sector output increased for the first time in three months during September, according to the Bank of Scotland’s Purchasing Managers’ Index for September.

The rate of expansion was the fastest for 14 months, as firms also recorded higher levels of new business and employment. 

The Index rose to a 14-month high of 51.2 in September, up from 49.1 in August. The latest figure ended a two-month period of contraction, as both manufacturers and service providers reported higher business activity.

Volumes of new business in Scotland’s private sector rose for the first time since June.

Meanwhile, jobs growth continued during September, albeit at a slower pace. A number of panellists linked the rise in head counts to efforts to support the expansion in output.

On the price front, firms raised their selling prices at a slower pace despite facing the fastest increase in input costs for 33 months. 

Nick Laird, regional managing director, Bank of Scotland commercial banking said: “An upturn in Scotland’s private sector was signalled in September, as the headline index rose to a 14-month high.”

Another survey published today by Deloitte shows that despite an easing of some negative effects, risk appetite among the chief financial officers of the UK’s largest businesses remains subdued following the EU referendum.

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