- In Q4 2021 the number of severely distressed SMEs in the North West decreased, in contrast to the rest of the UK
- Majority of jobs at risk in Manchester (95%) are held in the most severely distressed SMEs in that part of the region
- Manufacturing sector driving economic activity in the North, with growth prospects 3 per cent higher than the rest of the UK
Quantuma’s Clarity model has been created to inform and support the advisory and lending community in developing predictive insight into the health of UK’s SMEs. In addition to identifying opportunities for growth, Clarity also measures levels of distress amongst SMEs and their respective sectors to spot issues early and support advisers and directors in taking action to resolve them.
Key sectors drive Northern growth
Much of the economic activity in the North was driven by a strong manufacturing sector, which performed better than all other regions in terms of growth prospects, except for those in the Midlands. Other sectors with strong growth performance include construction, education, agriculture, retail and wholesale.
Manchester home to most jobs at risk in the North West
Clarity reveals that Manchester is home to a significant proportion of the most ‘at-risk’ jobs and businesses in the North West. The data shows that 95 per cent of all Manchester employees are in businesses that demonstrate the second-highest signs of distress in the UK.
This contrasts significantly with other cities, such as Leeds, where only 17 per cent of employees in distressed businesses can be found in the same category.
Looking across the wider North West, Clarity uncovers that Manchester accounts for more than 80 per cent of the total SMEs in distress.
Distress in the region
Analysis by Clarity revealed a counter-cyclical development in the most severe category of financial distress from Q4 2021 to Q1 2022. During this period, when the number of distressed companies in the UK was rising, the relative share of such companies in the North decreased. Further, Clarity highlighted a significant spike in the number of distressed companies in the UK in December 2021, whereas no such pattern emerged in the North West.
Despite performing against the UK trend, Clarity also found the region’s financial services, administration, transport, hospitality, and entertainment sectors to have a lower combined growth and financial strength score compared to the UK average (6 per cent, 13 per cent, 4 per cent, 6 per cent, and 4 per cent less than the UK average respectively for each sector).
Frank Ofonagoro, a Managing Director and head of Quantuma’s Financial Advisory team in the North West, said: “Like many other parts of the UK, the North of England has experienced unprecedented levels of distress in the last two years and whilst it is encouraging to see some of the positive insight from Clarity on SME growth there are more challenges ahead for the North West business community. For those businesses that are facing increased pressure on cash flow and their balance sheet, the earlier they review and diagnose the reasons for underperformance, the more time they will have to identify and implement relevant recovery options.”
“Clarity enables us to proactively identify those businesses that are in need of that support, and we are now working with the wider advisory community to focus efforts toward sectors most at risk, as pressure builds on businesses from rising inflation, interest rates and the cost-of-living crisis.”
