Insolvencies are set to rise, millions of pounds are still being written off, and confidence is at a low as a result of rising living costs, making for the most pessimistic financial outlook for the New Year to be seen since the dotcom bubble burst in the 1990s.
Both businesses and individuals are expected to suffer a rise in insolvencies in 2008. For companies, they are predicted to increase by 8.3 per cent to 13,492 – the highest annual rise since the economic fallout of the dotcom crash. A rise in late payments from companies to suppliers is an example of an early indicator of insolvencies to come, experts believe.
The future looks similarly bleak for individuals, who have an average debt to creditors of £30,000, and the rising costs of food, energy and higher mortgage repayments are forcing thousands into bankruptcy. Compared to 2004 when 47,000 people were declared bankrupt, 2008 is expected to see 120,000 personal insolvencies.
Despite a better than expected boost in sales over Christmas, there are still tough times ahead for the high street, which is expected to see slow business in the aftermath of the festive season when consumers spent all their credit on pre-Christmas bargains. Despite gloomy outlooks for 2007, consumers spent approximately three per cent more than over the course of the previous year, but retailers' costs rose by four per cent, so shops had to sell more stock in order to merely remain static.
Economists believe that confidence has been dramatically depleted over the last 12 months; almost 90 per cent of them consider pubic finances to be in bad shape and therefore vulnerable to increases in public spending, according to a survey carried out by the Financial Times.
Some, such as Sir Alan Budd, provost of Queen's College Oxford and former chief economic advisor to the Treasury are showing great concern for Britain's economy in the coming months. He said that he is "quite worried", because "some of the problems are unprecedented and don't seem to be responding to treatment."
Meanwhile, the credit crisis continues to wreak havoc in the global market, as Blackstone – the world's biggest private equity group – has been forced to write off a $1.8 billion (£906 million) deal because it was unable to secure the financing. Most of the world's leading banks have been given no other choice than to curb spending as a result of the credit crunch.
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