18 June 2019

  • British businesses could have £593bn tied up in excess working capital, putting pressure on cash flow at a time of uncertainty.
  • Trend driven by record levels of stockpiling in UK manufacturing sector.
  • Pressure hinders firm’s ability to maximise investment and manage unexpected challenges or opportunities.

British businesses could have £593 billion locked up in excess working capital, potentially hampering growth and leaving them exposed to economic uncertainty, according to new research from Lloyds Bank Commercial Banking.

The Lloyds Bank Working Capital Index combines the bank’s proprietary research and IHS Markit’s UK Purchasing Managers’ Index (PMI) data to calculate the working capital pressures businesses are under.

Analysis of nearly 9,000 firms revealed a total of £142 billion is tied up in working capital, a £15 billion rise on last year and a £41 billion hike on 2015. When compared against historical and industry best levels of cash flow efficiency, and extrapolated across UK businesses with more than 50 employees, this equates to £593 billion of excess working capital.

Working capital, the amount of money that a company has committed to the day-to-day costs of doing business, includes overheads such as stock and unpaid invoices.

Stockpiling dominates working capital pressures

Today’s figures indicate stockpiling is the biggest contributor to the increased amount of cash tied-up in working capital. The data shows business inventory levels have risen every year since 2015, with firms investing more than £8 billion this way in the last 12 months alone.

Stockpiling has led larger firms to increase inventory by 33 per cent on average in the last three years. Aerospace and defence, industrial manufacturing and pharmaceuticals were among the sectors experiencing the fastest inventory growth.

The trend for stockpiling pressurises firms’ cash flow, potentially leaving them unable to access the funds needed to manage unforeseen opportunities or challenges.

Looking ahead, more than a third of firms (35 per cent) said business and political uncertainty was the biggest concern affecting the way they plan to manage working capital in the year ahead. This was followed by changes to payment terms (16 per cent) and stockpiling (15 per cent), although this was heavily weighted to manufacturers.

With unpaid bills also weighing on businesses minds, data from the Lloyds Bank Commercial Banking Business Barometer found that 65% are taking proactive steps to collect overdue invoices1. According to the Working Capital Index, small firms typically have cash conversion cycles which are seven days longer than those of larger firms2.

Ed Thurman, Managing Director of Global Transaction Banking at Lloyds Bank, said:

“While businesses tying up significant amounts of cash can be an indicator of confidence, against a backdrop of uneven growth figures across core sectors, we shouldn’t be complacent.

“Our research confirms businesses are stockpiling as a precautionary measure, in the face of political and economic uncertainty, to ensure they are in a strong position to face into any potential challenges. Such a deliberate response to an ongoing situation can be risky as cash invested in inventory is rarely easy to release meaning firms are less able to invest in growth or respond to unexpected changes in demand.”

Working capital pressure most acute in manufacturing sector

The PMI data used as an early warning indicator in the Working Capital Index unveils overall pressure to increase working capital has remained relatively flat year-on-year, with a current UK reading of 104.9 (vs 104.6 in 2018)3.

Meanwhile, the reading for the manufacturing sector is at an all-time high of 130.7 (vs 111.0 in 2018)4. The UK’s services and construction sectors measured readings of 99.8 and 107.7 respectively5.

A reading of more than 100 indicates pressure to devote more cash to working capital, while a reading of less than 100 indicates pressure to prioritise liquidity.

Lloyds Bank’s Index found that nearly a third (29 per cent) of manufacturers cited stock build-up as their primary working capital concern, with businesses currently holding elevated stock levels which they plan to run down in the year ahead.

Regional variations

Firms in the East of England have the greatest relative opportunity to free up cash with nearly 11 per cent of total revenue currently tied up in working capital, having seen a 47% jump in inventory levels since 2015.

Those in London have the smallest relative opportunity (just over 5% of revenue), likely due to its weighting to the service sector, although even in London inventory levels grew 23% since 2015.

Notes to editors

1 Lloyds Bank Business Barometer survey was conducted with 1,200 companies between 1st and the 16th May 2019 from all sectors and regions of the UK.

2 Small firms cash conversion cycles average at 42.2 days, large firms at 36.9 days. Small firms defined as turnover £1 million to £100 million, large firms defined as £500 million turnover or more.

3 March 2019 vs March 2018 figures.

4 March 2019 vs March 2018 figures.

5 The research found that pressure to increase working capital for purchased and finished goods also hit an all-time high of 131.3, confirming that stockpiling was the most significant contributor to the manufacturing sector’s pressure to increase working capital.

Regional figures


Working capital opportunity as a percentage of total revenue


7.1 per cent


7.1 per cent

East of England

10.8 per cent


5.3 per cent

North of England

6.5 per cent

South of England

8.4 per cent


8.5 per cent

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