Bank of England publishes staff research finding floods raise business failure risk for UK small and medium-sized firms

The Bank of England has published a staff working paper examining firms’ exposure to flood risk and the effects of past floods, using linked business-premises, flood-map and financial data for England and Wales. Presented as research in progress rather than Bank policy, the paper finds flood risk is concentrated in specific regions and sectors, that larger premises are more likely to be in higher-risk areas, and that flooding materially worsens firm outcomes, especially for small and medium-sized firms. About 10% of corporate business premises are located on floodplains and around 20% are protected by flood defences. The research finds flooding increases the hazard of business termination in the event year by 32% for small firms and 43% for medium-sized firms, with repeated flooding adding a further 60% for small firms, while large firms do not show a comparable rise in exits. Among firms that survive, floods are associated with sharp one-year falls in turnover, employment and total assets, with large firms and natural resource-related sectors hit hardest. For SMEs, bank account data show a modest but persistent deterioration in liquidity driven by lower inflows and limited use of credit for recovery. Using a bottom-up approach, the authors estimate direct flood effects have reduced annual corporate turnover by 0.18% on average over the past 11 years, peaking at 0.9% in 2015, and annual UK GVA by about 0.2% on average.