Rise of 'zombie companies' in age of borrowing and inflation

The number of British firms at risk of becoming 'zombie' companies has surged as high borrowing costs and inflation leave many unable to invest.

A zombie firm brings in only enough cash to continue operating and pay its debts but not enough to invest in growth.

New data revealed one in six mid-sized firms in the UK – those with sales of between £10m and £500m – were at risk of becoming zombies as their investment funds were eaten up by higher interest rates and inflation, accountancy firm BDO's survey of 20,000 businesses claims.

The proportion – 15.9 per cent – was a 3.5 percentage point increase compared to 12 months ago. Leisure and hospitality firms and real estate companies are among those most at risk.

BDO partner Ben Peterson said: 'Although many have managed to navigate a difficult post-Covid environment, rising borrowing costs and inflationary pressures have significantly impacted their financial stability.'

The gloomy forecast was compounded by Cynergy Bank revealing that the creation of new British businesses had collapsed to an eight-year low.