Uncertainty over trade links with Europe combined with food and fuel inflation has resulted in companies within the supply chain showing increased levels of financial distress.
According to Begbies Traynor’s Red Flag Alert research for Q1 2017, which monitors the financial health of UK companies, the levels of ‘significant’ financial distress within key sectors of the UK supply chain have risen by 26% on average over the past year.
The research said this was principally the result of increased cost pressures from rising inflation in both fuel and food. UK inflation rose to 2.3% in March, its highest level since September 2013. Transport costs were the biggest contributor, increasing 6.6% over the past 12 months.
There was a 15% increase in the food and beverage manufacturing sector between Q1 2017 vs Q1 2016. The wholesale sector saw an increase of 16%, with transportation and logistics experiencing the largest increase in ‘significant’ distress, up 46%.
Begbies Traynor said these “negative findings” were yet to reflect the recent increase to the national living wage that came into effect on 1 April 2017.
“Given the scale of the increases in distress during Q1, it would appear that food suppliers, logistics firms and wholesalers are yet to fully pass on these rising costs to their customers,” said Julie Palmer, partner at Begbies Traynor.
“But it is only a matter of time before we start to see this coming through, especially given the added margin pressures associated with the new national living wage.”
Ric Traynor, executive chairman at Begbies Traynor, added: “These figures show that rising energy and food prices, combined with the devaluation of sterling, have undoubtedly put a strain on the much of the UK’s supply chain.”
He said that UK suppliers could not afford to adopt a ‘wait and see’ approach and would need to invest to improve their efficiency or renegotiate prices with customers.