Failed firms reach six-year low

The number of failed firms in the UK has plummeted to a record six-year low in 2004, mainly due to faster economic growth.

The optimistic picture for small businesses could however be cut short as early as next year, when bankruptcy rates are predicted to return to their normal level.

This is the finding from experts at BDO Stoy Hayward, the accountancy firm, who said about 16,150 businesses, are expected to have collapsed by the end of the year.

Last year's figures reveal a slump of 8 per cent on the number of collapsed firms, with most key sectors experiencing less enterprise failure in 2004.

Manufacturing failures emerged at their lowest since BDO records began in 1993, while retail firms achieved the lowest rate of collapse with just 0.4 per cent.

Likewise, insolvency rates have dipped for UK service companies, which experienced a 20 per cent fall in failures compared to last year's reading.

This was mainly due to an increase in business-to-business services, like research and advertising.

Leisure companies also emerged as 2004 benefactors, taking advantage of a surge in foreign tourists and corporate hospitability.

Yet, BDO analysts warned of an imminent slowdown in consumer and business spending, ensuring the sector cannot afford to become complacent as it heads into the new year.

Meanwhile, the survey found tough times lie ahead for the nation's construction and property professionals, as unpredictable interest rates threaten building projects.

Despite both sectors continuing to perform well in their declining level of bankruptcies, concern was expressed for the future of the industry in the years ahead.

Shay Bannon, BDO partner, said this meant challenges would be posed to the sector but bankruptcies would stay well below levels of 10 years ago.

"There's no cause for panic. With interest rates unlikely to increase for the moment, there is little danger that this slowdown will result into a recession."

According to BDO, the long-term outlook for small and medium-sized enterprises is less accommodating, with economic conditions suggesting a rise in collapses over a two-year period.

"The slowdown in consumer spending is set to reduce public demand for leisure services while interest rate rises make businesses reign in non essential spending."

The report is consistent with findings from the Department of Trade and Industry, published earlier this year.

 

21st December 2004

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