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Business insolvency to hit highest level in five years

14 December 2007
Next year, the number of business failures will rise to its highest level since 2003 according to the latest research from accountants and business advisers BDO Stoy Hayward.

The latest Industry Watch report - a quarterly projection of company failures in the UK over the coming three years – forecasts that in 2008, company insolvency will hit 17,697; a nine per cent increase on 2007.

The report, which blames the credit crunch, higher interest rates and the slowing of economic growth for the increase in business failure, predicts the figure to be even higher in 2009 – up to 18,142, which would be the highest insolvency rate since the bubble burst.

It is thought that the manufacturing, retail, property and construction and services sectors will be hit the hardest. This is down to a number of factors; manufacturing companies are struggling with tougher international competition, higher oil prices and a decline in production, while retail is being hit hard by a fall in consumer spending growth. And with mortgage approvals at their lowest level since the summer of 2005, predictions are for a massive slowdown in the housing market which in turn will cause delays in construction projects and affect builders and other construction businesses.

“British business faces a tough time next year with the number of business failures set to reach levels not seen for five years," said Shay Bannon, Business Restructuring Partner at BDO Stoy Hayward LLP.

"Businesses in most sectors will need to prepare for a more challenging economic environment as the global credit crisis kicks in. It’s a pretty gloomy picture but the good news is that business failure rates are still a way off from reaching 2002 levels which saw almost 20,000 companies go bust."

But, says Bannon, there is a glimmer of hope for retail, predicted to be bolstered if the Bank of England slashes interest rates further, and the property sector, "which will be supported by the build up to the Olympics."

Bannon's advice is to plan ahead; “to avoid becoming another business failure statistic in 2008, it’s important that companies feeling the pinch have contingency plans in place and take action early.”

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