Britain has become Europe’s “zombie” capital, accounting for a third of the region’s indebted companies kept alive by record low interest rates and bailouts.
The share of UK non-financial businesses which were “zombies” has jumped six percentage points to 15pc in the last year, the highest level in Europe, according to data from Bank of America.
Its analysts found the Covid-19 shock triggered a “surge” in the number of European zombies in the first quarter, and warned that UK firms “stand out” in particular.
The warning came as new forecasts predicted the crisis will cause global corporate debt to swell to a record $9.3 trillion (£7.4 trillion). Zombie firms are defined by their ability to pay the interest on their debt pile.
“Too much debt risks leaving corporates as zombies, which makes it even more challenging for economies to rebound from recessions vigorously,” warned Barnaby Martin, credit strategist at Bank of America.
He said the rocketing number of zombie firms “puts extra urgency on proactive fiscal policy by governments to help reduce corporate leverage in this crisis”.
Mr Martin urged policymakers to use “innovative ideas” to tackle the issue as companies struggle with their debt loads.
Bank of America found that zombies had much weaker levels of capital expenditure and employment growth in the last decade.
They also had underperforming share prices, making it harder for them to tap markets for funds.
The mountain of corporate debt worldwide is set to surge by $1 trillion this year to a record $9.3 trillion, according to new forecasts from fund manager Janus Henderson.
Borrowing is expected to rise as companies wean themselves off cheap emergency lending schemes set up by Governments and central banks during the coronavirus crisis.