Slow growth but many businesses remain at a standstill

November 2011

The 0.5% increase in GDP comes against a backdrop of low expansion and a reluctance to take on new staff.

Despite a modest rise in GDP, most businesses are still struggling to expand – only 21% are doing so according to R3, the insolvency trade body. R3’s quarterly Business Distress Index shows that only 22% have seen increased profits, and only 11% increased their workforce in Q3.

While the 0.5% growth increase in GDP is up on the previous quarter, many businesses are experiencing signs of distress - with 22% making frequent use of their maximum overdraft facility and 43% experiencing decrease profits. The results found that businesses in the services sector are more likely to be experiencing growth than those in the manufacturing sector.

The recent GDP figures, while travelling in the right direction, run contrary to what is happening on the ground, with most businesses not reporting signs of growth. While this might not be enough to push businesses over the edge, prolonged periods of distress will trigger an increase in formal insolvencies – we can see from our research that more businesses are having to use their maximum overdraft. I would worry that some businesses are not sufficiently rebuilding their reserves to support expansion, whenever that comes, and these signs of distress are likely to remain despite today’s increase in GDP.