More than 21,000 UK manufacturers which rely heavily on exports could be tipped over the edge in a Brexit scenario, despite the boost from the weaker Pound

UK exporters may be experiencing a much needed boost in recent weeks due to the weakened Pound Sterling. Even so, recent research reveals that the UK’s largest exporting industries continue to suffer from rising levels of financial distress, which doesn’t bode well for the sector in the event of a potential Brexit.

Independent insolvency firm, Begbies Traynor released a new edition of Red Flag Alert research, which monitors the financial health of UK companies. According to the study, 21,061 UK manufacturers, many of which rely heavily on exporting, ended the first quarter of 2016 in a state of significant financial distress – 20 per cent higher than the equivalent period last year – despite the weak Pound making UK exports more attractive to international buyers. 

With growing uncertainty surrounding the outcome of the referendum vote in June, combined with concerns around what any future trade agreements with Europe will look like, difficult questions have been raised over how this could impact the UK’s already struggling exporters and financial services industry.

According to Julie Palmer, partner at Begbies Traynor, the UK’s exporting industries are already under significant financial pressure and can’t afford any potential risk to the 50 per cent of British exports that go into the EU. “The figures show that the threat of uncertainty surrounding the Referendum has already put the brakes on this segment of the economy, which should be accelerating with the benefit of recent Sterling weakness, with many UK firms adopting a ‘wait and see’ approach to any change to the UK’s relationship with the EU.”

Of the manufacturing sub-sectors covered by the research, food and beverage production experienced the largest increase in businesses suffering from significant distress – up 29 per cent year-on-year. This is followed by the broader manufacturing sector (up 21 per cent) and the automotive sector (an increase of 17 per cent).

Meanwhile the Red Flag research shows that the UK’s financial services sector, which has significant exposure to the European financial markets and investment community, is in a substantially weaker financial position compared to the same stage last year. The number of UK financial services businesses suffering significant financial distress is up nearly a quarter at the end of Q1 to 5,391 companies, ahead of a potential Brexit, to which the sector has been much opposed.

Palmer continued: “Considering the current struggles that the UK manufacturing industries are facing, as seen most starkly in the steel industry recently, and the significant potential impact of a Brexit vote, it is crucial that firms make contingency plans for either outcome of the Referendum to avoid further deterioration in their financial health.”

In the event of Brexit, the UK’s manufacturing sector may need to prepare for changes in regulation and an extended period of uncertainty around negotiating new trade agreements, passporting rights and foreign investment and influence.