SCOTLAND has more “zombie” firms than any other country in the UK, according to a new report which highlights the drag on economic growth from businesses under financial strain.

An analysis of the last three annual accounts by UK listed companies has revealed nine per cent of Scottish firms are displaying “zombie symptoms”. This compares with 8% for the UK as a whole, the report by KPMG found. The accountancy firm said ‘zombie symptoms’ include static or falling turnover, low profitability, squeezed margins, low cash and working capital reserves, high leverage and limited ability to invest in new equipment, products or processes.

And the analysis, of 1,084 Scottish firms, found companies in the education (29%), mining and extraction (26%), real estate (22%) and automotive (21%) sectors as the most likely to display such characteristics.

KPMG, which highlighted the “risk contagion” to investors in these sectors, said companies in education are coming under pressure because of falling student numbers in the face of Brexit, while those in oil and gas have struggled with low levels of capital expenditure in the North Sea, despite oil prices recovering following the crude price slump.

In real estate, the impact of reduced occupancy levels, declining rents and falling values in the retail sector were highlighted.

Blair Nimmo, head of restructuring at KPMG, said: “For the past decade, zombies have been allowed to sleep walk largely undisturbed, thanks to an extraordinary monetary and political environment, coupled with lenders exhibiting greater creditor forbearance to struggling companies in their portfolios. The uncomfortable truth, however, is this environment is unlikely to persist indefinitely.

“In the event of a liquidity squeeze, many of these underperforming businesses would fail – and if this happens, the potential for contagion is very real.”