Zombie Firms Are Being Killed Off by Britain’s Inflation Crisis

(Bloomberg) — Britain’s so-called “zombie” companies are being wiped out by the inflation crisis and rising interest rates, according to the head of bankruptcy specialist Begbies Traynor Group Plc.

“Over the next 18 months, we’ll see virtually all of them finally come to an end,” Ric Traynor, its executive chairman, said in an interview. Economists define zombies as companies barely able to service their debts, but which have been kept afloat by years of cheap borrowing costs.

Insolvencies across England and Wales have risen toward levels last seen in 2009. Traynor said companies in construction, retail and hospitality were particularly vulnerable in the months to come.

“We’ve seen an increase in activity for smaller companies over the last year because they tend to be the first ones that are hit when there’s a problem,” Traynor said. “We’re now moving into mid-market companies.”

The wave of corporate defaults is good business for Begbies Traynor. The company delivered double-digit revenue growth in the 12 months to April 30 and increased its total dividend for a sixth consecutive year, according to results released on Tuesday.

Firms are suffering on multiple fronts, as higher borrowing costs and sticky inflation compound with weak demand from areas vulnerable to discretionary spending.

The UK is set for a “drawn-out” period of corporate distress over the next two years, Traynor said.

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