Industry stagnates as suppliers cut investment

Levels of ‘critical’ financial distress among UK businesses had increased by 4% in the first quarter of 2015, putting 2,461 companies at risk of failure, according to a new report from insolvency firm Begbies Traynor.

Uncertainty in the lead up to the general election had put on hold suppliers’ growth plans, it said.

More than 1,400 food and drink suppliers already faced collapse​ as a result of the ‘brutal pressure’ from the supermarket price wars, according to an earlier Begbies Traynor report.

Suffering significant distress​

The number of food firms suffering significant financial distress had soared by 92% in the fourth quarter of last year, compared with 733 for the same period in 2013, it added.

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.” ​

Businesses had responded to economic forecasters, who predicted political uncertainty would result in low consumer confidence, sharp swings in the value of the pound and rising volatility in the equity markets, Palmer added.

Yet, businesses may have been overcautious, as trading volumes hadn’t been impacted by the general election so far, claimed Ric Traynor, Begbies Traynor executive chairman, “suggesting that many businesses may have missed out on significant growth opportunities over the first quarter by being overly cautious”. ​

‘Too late in the day’​

However, political uncertainty among businesses had made it “too late in the day to revert back to growth mode”, ​he added.

Julian Wild, head of the food team at Rollits solicitors, disagreed with the report and said the food and drink sector had seen significant investment in the past 12 months.

“I can think of four or five major examples ​[Mondelēz, United Biscuits and Quorn] of food and drink investment,” ​he told FoodManufacture.co.uk.​

“I’m not aware of investment drying up in the food and drink industry, although I am aware of the sector being cautious about how the next government could affect it.” ​

Meanwhile, read why Wild believes UK food and drink manufacturers would be against a Labour coalition with the Scottish National Party​ in a FoodManufacture.co.uk exclusive soon.