Number of business failures set to surge in 2009

The number of UK business failures is predicted to increase by almost 50% next year according to a report from a leading accountancy and business advisory firm.

The BDO Stoy Hayward Industry Watch report forecasts that as economic conditions worsen, business failures will rise to 21,900 by the end of this year and to 32,300 in 2009, to a peak of 32,400 in 2010. The 2009/2010 figures would follow the highest annual rate of business failures recorded since 1992 when 33,900 businesses failed.

According to the report, the sector that will suffer the most by mid 2009 is Construction where a predicted 6,400 businesses will fail. This is followed by business services (5,700), Real Estate (3,200) and Manufacturing where 3,000 companies are predicted to fail.

Measures announced in the Pre-Budget report will go a little way to drive down these numbers, according to the report. This will come as little surprise to most Bytestart readers!

A predicted 1,100 businesses will be saved through the newly announced fiscal stimulus. Without these changes, the number of business failures would rise to an estimated 33,500.

According to the report, consumption growth is set to fall to 1.0 per cent by the end of this year as the economy starts to retract and consumers tighten their belts. But much worse is to come in 2009. Rising unemployment and weakening earnings growth will be compounded by increases in savings. Falling inflation will only partially offset these effects as consumption in 2009 is predicted to decline by 1.5 per cent and GDP is expected to contract by 1.0 per cent.

A recent report issued by Equifax also backs up these predictions. According to the business information provider, the number of business failures during October and November 2008 was over 27% up on the previous year, with failures in the construction industry up by nearly half.

Despite the gloomy projection, UK business should draw confidence from the economy being in a different position than in previous recessions, suggests Shay Bannon, Head of Business Restructuring at BDO Stoy Hayward. He says: “Despite the pessimistic outlook in the short term, the UK economy is in a better position in this stage than in recessions seen before. Low interest rates and inflation gives the UK strong economic foundations for recovery.”

“The PBR measures should act to mitigate some of the effects of the financial crisis intensification and prevent growth falling below the -1.25 per cent limit of the Treasury forecast but this all seems too little too late for those UK businesses which will not survive the downturn.”

“All sectors across the economy will be hit over the next eighteen months as all businesses feel the impact of the challenging environment. It is important that businesses now, more than ever, focus on managing and sustaining their cash flow and find ways of effectively meeting the needs of consumers.”