Business failures herald economic gloom

A sharp increase in the number of business bankruptcies have confirmed the continuing slowdown in the UK economy. Separate surveys from business information providers Experian and D&B highlight an accelerating rate of insolvencies across all sectors with business services being particularly hard hit.

D&B found that the number of company failures recorded was the highest for three years, and were the second worst since the end of the recession in 1994. Almost 33,000 firms have failed in the first nine months of 2002, a 7 per cent rise on the same period last year.

Experian found that company failures have jumped 16 percent in the last three months against the same period of 2001. The industry sector with the highest number of failures in the third quarter was Business Services, with 910 failures, an increase of nearly 14 per cent on the third quarter in 2001. The South East, including London, recorded over 42 per cent of all failures in the UK during the third quarter.

Phil Cotter, Director of Experian’s Business Information commented: “Whilst the quarterly trend is erratic, there is still a definite upward trend in corporate failures, which began in the fourth quarter of 2001. Whilst some of the changing pattern could be put down to last year’s foot and mouth epidemic and the subsequent drop in tourism and rural economic activity, especially in the North West, one of the regions most affected and which has seen double the national average increase in failures, this is only a small part of the explanation. The increases have come virtually across the board, covering service and manufacturing industries, and throughout the UK.

D&B said the figures showed that UK companies still faced a tough battle to survive, despite recent signs that growth could be picking up.

"Last quarter we had strong hopes that the rate of business failure in Britain had started to decline," said D&B’s Philip Mellor.

"I believe it would have done so but for worries about the continuing slowdown in the UK and other European economies."

Mr Mellor also said he feared that a slowdown in consumer spending could see more companies go to the wall.

So far, the High Street spending boom has managed to offset weakness elsewhere in the UK economy.

D&B found that the biggest increase in company failures came in the West Midlands where 2,866 firms have gone under an increase of nearly 16 per cent on the same period last year.