The credit crunch and consequent slowdown in the economy is tightening its grip on British businesses, according to new research, with many more companies expected to become insolvent over the next two years than predicted just six months ago.

The accountants BDO Stoy Hayward estimate that business failures will rise by 18% over the next two years, compared with its forecast in December that failures by the end of 2009 would be up by 11.4%.

"This is a sure sign that the impact of the credit crunch is going to have a bigger lag than expected on UK business," said Shay Bannon, business restructuring partner at BDO Stoy Hayward. "Six months ago there was hope that businesses would feel some respite if the Bank of England slashed interest rates. But spiralling inflation figures now mean that this is unlikely in the short term."

The BDO Industry Watch report follows gloomy statistics from the Insolvency Service last month, which showed that the number of firms in administration had soared by more than 54% over the first three months of the year. Company liquidations overall were up 2% on the previous three months and rose by 4% compared with the same period a year ago.

The figures also showed a rising number of individuals declared insolvent in England and Wales. Personal bankruptcies rose 0.1% from the previous quarter, to 15,651. The number of individual voluntary arrangements, meanwhile, grew by 4.3%, although that number was down 22% on the same three months last year.

BDO Stoy Hayward reckons business failures will rise to 17,874 this year from 16,168 in 2007 and jump to over 19,000 in 2009, the highest level since the dotcom bubble burst earlier in the decade.

"With the number of business failures expected to decrease in 2010, there is light at the end of the tunnel. But until then companies need to batten down the hatches," said Bannon.

Technology companies are likely to be among those most able to cope with the tough economic climate as they benefit from increased business from companies seeking to cut costs.

Earlier this month, Fabrice Desnos, the UK boss of Euler Hermes - part of the credit insurer Allianz - warned that the retail sector could soon see a wave of companies going into administration. He said retailers were finding it harder to pay their suppliers and faced the toughest economic climate since the early 1990s.

About this articleClose This article appeared in the Guardian on Monday June 16 2008 on p23 of the Financial section. It was last updated at 08:51 on June 16 2008.

See Original Article

Call now for help with debt in your business.

Call us on: 0800 071 1616

Email us on: info@debtsgone.co.uk

Website: www.debtsgone.co.uk