NEARLY one in four businesses in Yorkshire and the North East could struggle if interest rates rise by one per cent.

The findings are from insolvency body R3’s latest Business Distress Index, a survey of a nationally representative sample of 500 business owners and directors.

Insolvency experts say that in spite of economic recovery over the past year the figures show that not all businesses are out of the woods yet.

Chris Wood, Yorkshire R3 vice chairman and partner at Clough Corporate Solutions in Cleckheaton, said: “Economic recovery is just as tough a time for some businesses to negotiate as a recession, if not tougher. Normally, insolvencies peak after a recession, but we haven’t seen that this time around. Record low interest rates and high levels of creditor forbearance have helped keep lots of businesses going.

“The good news is that some businesses that might have expected to struggle after 2008 have been given extra time to put their finances in order. However, there is still a big chunk of businesses that will struggle once ‘normal’ recovery conditions, like rising interest rates, return.

“A one percentage point rise in interest rates is at the upper limit of what we might expect in the next 18 months, but policy makers should bear in mind that many businesses still feel they’re close to the edge of their comfort zone.”

The survey showed that seven per cent of regional business say they would be put into ‘serious’ financial difficulty were interest rates to rise over the next 18 months while 17 per cent would expect some problems. Just over half of regional firms said they would be unaffected by a rate rise.

Yesterday Bank of England Governor Mark Carney appeared to play down the prospect of imminent interest rate rises.

Giving evidence to the Treasury Select Committee, Mr Carney said there seems to be “more spare capacity in the labour market than we previously had thought”.

The comments follow mounting speculation that interest rate rises could be brought forward, after Mr Carney said the markets were underestimating how long it would be before they move off the historic low of 0.5 per cent.

The Institute of Directors (IoD) yesterday called for the first increase to happen this year, potentially as early as the autumn.

But Mr Carney said: “The best collective judgement of the MPC (the Bank’s Monetary Policy Committee), which I share, is that there is additional spare capacity in the labour market that can be absorbed further before we would look to begin to normalise, in other words raise, interest rates.”