Business failures set to rise

2003

More than 400 companies will fold every week for the next three years as consumer spending slows down.

The pessimistic projection – foreseeing over 63,000 UK businesses failures 2006 - comes from BDO Stoy Hayward's Industry Watch report. Domestic-focussed industry sectors are the most likely contenders for collapse.

Industry Watch, which projects total British business failures by sector, reveals that business failures rose by six per cent last year, with 19,928 firms folding in 2002 - 383 every week - compared to 18,783 in 2001.

Quarterly business failures are set to fluctuate between 5,000 and 6,000 over the next three years, compared to an average 4,000 to 5,000 since 1994.

Manufacturing, which is already experiencing record levels of job losses, will continue to see the greatest volumes of business going to the wall. Having suffered more than most during global economic slowdown, manufacturers are teetering on the brink of recession. Industry Watch predicts that in much of 2004 and 2005, business failures will exceed 1,000 a quarter. In the short term, business failures will grow by a fifth from 750 in Q4 2002 to 952 in Q4 2003.

The vulnerable wholesale sector will see the biggest jump in business failures in the short term as consumer spending slows and GDP growth decreases. According to Industry Watch, failures will rise by nearly a half, from 227 in Q4 2002 to 333 in Q4 2003.

The travel and transport sector will suffer the second biggest rise with failures growing by more than a third between Q4 2002 and Q4 2003. The number of businesses going to the wall will be 731 (1.6 per cent) in 2003, and 772 (1.7 per cent) in 2004 and 2005. As with the wholesale sector, while growth rates are high, the actual number of business failures is relatively small, accounting for just 4 per cent of total UK business failures expected in Q4 2003.

The only industry sector set to see a fall in business failures over the next year is the services sector. Industry Watch predicts that only one per cent (3001) of the sector's businesses will fail in 2003. As economic recovery begins quietly in 2004, failures will slow to around 600 a quarter in the latter half of the year, dropping below 600 in 2005.

But retailers will suffer as consumer purse strings tighten. 2003 will see the UK's weakest real consumer spending growth since the 1990s. It is estimated that 1,734 retail businesses will collapse in 2003, rising to 1,810 in 2004 before falling back to 1,734 in 2005 as economic recovery begins.

The technology, media and telecoms (TMT) sector - the first to feel the effects of economic downturn in 2000 – remains in recession. But in 2004, BDO Stoy Hayward predicts a gradual recovery, accelerating into 2005 as the sector returns to pre-dot com crash levels. In the short term, business failures will rise by just three per cent from 687 in Q4 2002 to 706 in Q4 2003.

Shay Bannon, Business Recovery Services partner at BDO Stoy Hayward said: "This quarter, we are seeing the true impact of the consumer spending slowdown on UK companies. With hundreds of firms set to collapse, business managers and owners must avoid burying their heads in the sand, and wise up to the early warning signals that indicate problems. The key to survival is being prepared, and taking urgent action when alarm bells start ringing."

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