The Midlands remains the UK’s hotspot for early-stage startups, according to Clarity, a new data asset from business advisory firm Quantuma.

In a new report on the Midlands economy, the firm also reveals that the region is driven by a thriving manufacturing sector, which also leads in terms of growth prospects compared to any other UK region, along with strong performances for the construction and financial services sectors.

Quantuma’s Clarity data model has been created to inform and support the advisory and lending community in developing predictive insight into the health of UK SMEs. In addition to identifying opportunities for growth, Clarity also measures levels of distress amongst SMEs and their respective sectors to spot issues early and support advisers in taking action to resolve them.

A hub for start-ups but more support is needed for maturing businesses

The report analyses the distress of SMEs by age distribution in the region and reveals that the proportion of the most severely distressed SMEs in the zero to three years age bracket is significantly lower than in the same category for the UK as a whole. In the Midlands, those startup businesses account for only 2% of the total number of distressed businesses, compared with 8% across the UK.

This difference is offset in the three to seven years age bracket, where SMEs in the Midlands account for 43% of the total compared to 38% in the UK as a whole.

A thriving sector – manufacturing

The UK is currently experiencing a boom in manufacturing, and this is especially apparent in the Midlands. According to data from Clarity, the manufacturing sector in the Midlands is performing well in comparison to all other regions in the UK. In addition, manufacturing SMEs in the region rank 17% higher than their London counterparts when it comes to growth prospects and financial stability. Construction and financial services SMEs also outperform UK SMEs on average, ranking higher on growth and financial stability than London and the UK average.

However, across other sectors in the region, the outlook is not as bright. SMEs in the leisure, utilities, healthcare, transport and logistics sectors rank lower when it comes to financial stability and growth compared to London and several other regions in the UK.

Identifying distress and jobs at risk

Analysis from Clarity highlights that financial distress for SMEs in the Midlands has been broadly consistent with the rest of the UK. The report also highlights that there are differences within the region when it comes to jobs at risk. Clarity identifies that nearly twice as many jobs are at risk in the West Midlands region (9,000) compared to the East Midlands (5,000). Of those 9,000 jobs, 17% are in SMEs that sit in Clarity’s most severely distressed category (15 to 25 times more likely to fail), compared to just 6% in the same category in the East Midlands.

Richard Easterby, head of Quantuma’s Birmingham office, said: “The Midlands boasts one of the UK’s most exciting places for entrepreneurs to set up their businesses. However, it is important to capitalise on the opportunities to spread growth and investment across the whole of the region, especially when it comes to supporting maturing businesses.

“Clarity gives us the opportunity to work with businesses and other professional advisers across the region to plan by identifying the key sectors and individual businesses that need the most attention. Looking at job stability in the region, it is evident that policymakers need to address this uncertainty while also developing new paths to distributing growth opportunities across the Midlands as a whole.”