Rising interest rates could be a lifesaver for some businesses, according to commercial analyst Plimsoll Publishing.

“Our research shows over a third of UK fresh produce companies are in more debt than they have been at any time in their history,” said David Pattison, senior analyst at Plimsoll. “Rising rates are a useful wake-up call. Many of the companies in question have been enticed by low interest rates and the lure of easy debt secured on rapidly rising property prices. So they have been able to cover up flaws in their business strategies - effectively buying time. There is just enough time left for these firms to look seriously at their balance sheets and change direction.”

According to Plimsoll, if companies reduce their level of debt and streamline their business models, they may have a future. But if they ignore the alarm call they risk walking into danger.

Rising rates should also bring stability to the fresh produce sector because they will slow down the pace of acquisition activity. While this is unlikely to affect deals already on the table, companies with some money in the bank will probably leave it there in the short term. “This may be bad news for smaller firms hoping to sell out to the bigger players, but it’s good news for those fearing a hostile takeover,” said Pattison.

“The companies in the danger zone, however, may see themselves joining a wave of high profile distress sales as the banks tighten their books - unless they take action now, before the Bank of England announces further rises.”

Wage demands will also start to increase to keep pace with dearer borrowing. “While the Bank of England itself says that rising interest rates can take up to two years to exert their full impact, employees paying their mortgages are usually the first to feel the strain,” said Pattison.

“The other side of that coin, however, is that company growth should not be badly affected in the short term, allowing last year’s sales figures to be matched or beaten.”

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