One in 11 northern businesses would struggle to pay their debts if interest were to rise, according to new research.

Insolvency and restructuring trade body R3 and London-based consultancy BDRC Continental found that 29,000 businesses in the north - nine per cent of the total - would be unable to repay their debts if interest rates were to rise by a small amount.

This is compared to 17,000 in September 2016.

The research, part of a long-running survey of business distress which found that 13,000 firms - four per cent - were just paying interest on their debts.

Paul Barber, north west chairman of R3, said: “This is the first increase in the number of businesses worried they would be unable to cope with an interest rate rise since 2014, and it coincides with a period of slower than expected growth and a small rise in corporate insolvency numbers.

“The research shows that many firms are currently walking a very tight line. While paying interest only on debts is always a bad sign – it may be that the firm is taking advantage of low rates to fund growth - rising inflation may lead to a double-whammy by increasing the chance of an interest rate rise, and undermining the consumer spending that has driven the economy over the last year.”

The research also found 10 per cent of northern businesses were showing signs of distress compared to 24 per cent last September, while the number of businesses struggling to repay debts when they fall due was negligible, as was the number having to renegotiate payment terms with creditors.

Meanwhile 61 per cent of businesses in the region reported signs of growth, similar to September’s figure of 60 per cent.

Paul Barber added: “A growing economy means fewer businesses are likely to show signs of serious distress though there is no reason to be complacent. The latest economic growth figures were lower than expected, while a healthy business’s finances can deteriorate rapidly depending on external factors, such as the cost of materials or the failure of key customers or suppliers. And as the other statistics show, some firms are starting to find their room for manoeuvre is limited.

“Although growth has faltered slightly since early 2016, the vast majority of Northern firms have fared reasonably well over the last year. Any uncertainty over the consequences of Brexit hasn’t filtered through too much – yet.”