With the Bank of England raising interest rates, heavily indebted companies are going to find the cost of servicing their debt just got that little bit more expensive. Plimsoll has taken a deeper look at the UK markets most vulnerable to more expensive debt repayments.
Having analysed 1600 different UK markets, Plimsoll was able to identify the industries where the level of debt as a percentage of sales was worryingly high. These are the areas of the economy where problems are likely if monetary policy tightens aggressively.
The following is a breakdown of the 10 markets in the UK economy with the biggest average increase in debt companies have taken on in the latest year:
| Industry |
Increase in average debt |
| 97% |
|
| 94% |
|
| 76% |
|
| 74% |
|
| 74% |
|
| 62% |
|
| 57% |
|
| 54% |
|
| 53% |
|
| 52% |
Christopher Evans, Senior Analyst at Plimsoll explains, “While there are no immediate signals that this is the first of a series of increases, this increase should a shot across the bows of many companies and industries where there is a growing tendency to run based on debt”. Word maybe missing from this sentenc? Not sure what word though.
“One of the phenomena of the post 2008 economy has been zombie companies surviving on the back of cheap money. That period could be coming to an end as debt becomes more expensive to service. The industries we have listed here certainly have an increased appetite for debt recently. Further rate rises could stop momentum in those markets pretty quickly”.
Are some markets doing the opposite?
There are many industries where debt is being reduced on a significant scale. The following 10 industries have seen the biggest decline in average debt in the latest year:
| Industry |
Decline in average debt |
| 64% |
|
| 58% |
|
| 56% |
|
| 54% |
|
| 53% |
|
| 53% |
|
| 52% |
|
| 52% |
|
| 51% |
|
| 50% |
Evans explains, “Clearly, there has been a concerted effort in some industries to get debt as a percentage of sales down to a more manageable level while monetary policy is still loose. This removes any threat posed by interest rate rises in the future”.
Find out how many companies in your market are vulnerable to the interest rate rise by visiting www.plimsoll.co.uk