Britain’s inflation crisis is causing the demise of zombie firms. These firms, although technically alive, lack viability. During the pandemic, they relied on cheap debt and government support to stay afloat. However, they are now struggling to cope with rising costs.
According to the Centre for Economic Policy Research, the number of zombie firms in the UK declined by 15% in the first quarter of 2023. This marks the largest quarterly decrease in zombie firms since the financial crisis.
Several factors are driving the decline of zombie firms. Rising interest rates are increasing the cost of servicing their debt. Additionally, the war in Ukraine is pushing up energy and commodity prices, further burdening these firms with costs.
The decrease in zombie firms is beneficial for the UK economy as it frees up resources for more productive businesses. However, it also means job losses in certain sectors as these firms are forced to close down.
The Bank of England has warned that the number of zombie firms could continue to decrease in the coming months due to the uncertain economic outlook. This could result in more job losses and a slowdown in economic growth.
Here are some of the sectors that are most likely to be affected by the decline in zombie firms:
- Retail
- Manufacturing
- Construction
- Hospitality
- Transport
These sectors are all heavily reliant on debt, and they are also facing rising costs. As a result, they are more likely to be forced to close down if they cannot find new sources of funding.
The decline in zombie firms is a sign that the UK economy is starting to adjust to the new reality of higher inflation. However, it is also a reminder that the economic outlook remains uncertain, and there could be further job losses in the coming months.
