The number of companies becoming insolvent in 2008 is set to rise to the highest level in five years, says new research.

An anticipated 17,697 UK businesses will fail next year, up nine per cent on the expected level for 2007, according to accounting and business advisory firm BDO Stoy Hayward.

The increase in the number of businesses forecast to go to the wall comes amid a prediction the ongoing credit crunch and higher interest rates will increasingly bite over the coming months.

BDO's forecast comes despite the quarter-point interest rate cut implemented by the Bank of England last week, in response to signs of an apparent economic slowdown.

Today's report anticipates economic growth will slow to 1.8 per cent in the period
ahead.

As a result business failures are predicted to rise even further in 2009, when business insolvency rates are expected to increase to 18,142 – a level not seen since the dot.com bubble burst.

Manufacturing is forecast to be among the sectors worst hit, with a weakening world economy, tougher international competition, high oil prices and a decline in production expected to contribute to business failure rates in the industry rising from 1,887 in 2007 to 1,994 in 2008.

A greater number of retailers are also expected to go bust next year, when consumer spending is expected to fall sharply. BDO claims interest rate hikes next year will encourage shoppers to save rather than spend.

Expectations of a housing market slowdown are also likely to lead to an increase in the number of construction firms which fail, largely as a result of delays to development projects, the research suggests.

Meanwhile insolvency rates among service sector firms are forecast to increase by 15 per cent year-on-year in 2008, with the majority of failures set to come from the financial services industry – the most vulnerable to the impact of the ongoing global credit crunch.

Commenting on the figures, Shay Bannon, business restructuring partner at BDO Stoy Hayward LLP, said: "Businesses in most sectors will need to prepare for a more challenging economic environment as the global credit crisis kicks in."

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