Its Red Flag Alert research for the first quarter of this year revealed that 21,061 general manufacturers – many of which rely heavily on exporting – ended the first quarter of 2016 in a state of ‘significant’ financial distress.
The figure was 20% higher than the same period last year equivalent period last year – despite the weak pound making UK exports more attractive to international buyers.
About 21,000 general UK manufacturers that relied heavily on exports could be “tipped over the edge in a Brexit scenario”, said the firm.
Food and drink manufacturers suffered
Food and drink manufacturers suffered the largest increase in businesses suffering. Those classed as suffering ‘significant’ distress was 29% up on the first quarter of last year.
Begbies Traynor partner Julie Palmer said: “Our data shows that the UK’s exporting industries are already under significant financial pressure and can ill afford any potential risk to the 50% of British exports that go into the EU.”
The research revealed the threat of uncertainty surrounding the referendum had already put the brakes on this segment of the economy, which should be accelerating with the benefit of recent sterling weakness, she added.
Palmer told FoodManufacture.co.uk: “Ahead of the referendum vote in June, our data shows that the UK’s food and drink manufacturers are under significant financial pressure.
‘Supermarket price war’
“Despite the recent sterling weakness boosting demand for their products overseas, these businesses have been struggling for some time as a direct result of the ongoing supermarkets’ price war, which has been severely squeezing margins on home turf for well over a year now.”
Many food and drink manufacturers were delaying investment ahead of the in-out referendum vote, according to the research.
“Given that the these producers represent the UK’s largest manufacturing sector, and one which counts Europe as its biggest export market, the growing uncertainty around the potential Brexit is another unwelcome issue, causing many food and beverage exporters to now adopt a ‘wait and see’ approach on what the UK’s future trading relationship with the EU will look like,” said Palmer.
“However these firms mustn’t bury their heads in the sand but rather should make contingency plans for either outcome of the referendum to avoid any further deterioration in their financial health.”
Begbies Traynor executive chairman Ric Traynor said the prospect of a vote to leave the EU raised difficult questions over how the UK’s manufacturing sector would cope with changes in regulation and protracted periods of uncertainty associated with negotiating new trade agreements.
“The current weakness in the UK’s manufacturing industries and financial services sector doesn’t bode well for the UK’s negotiating power with Europe and indeed other potential trade partners, should Brexit become a reality,” said Traynor.
“If we do leave, the process of agreeing new trade agreements is likely to be a long and drawn out process, so businesses should, in that situation, prepare for the long haul.”
Sectors suffering ‘significant distress in the first quarter of 2016
- Food and drink manufacturers: up 29% (1,820 firms) compared with 2015
- General manufacturers: up 21% (10,858 firms)
- Automotive sector: up 17% (8,383 firms)