10 October 2007
Fewer UK businesses are failing
But tough times lie ahead for Agriculture, Banking and Business Services
Although the number of corporate failures in the UK continues to decline, an increase in businesses failures in key industry sectors points to tough times ahead, according to the latest figures released by Experian®, the global information solutions company.
Whilst there was a marginal 0.4 per cent reduction in the number of businesses failing in quarter three 2007 compared to the same quarter last year, the year-to-date figure showed a far healthier 4.7 per cent decline, or 661 fewer businesses failing. Although 2007 is proving a better year than 2006, when Experian recorded its highest ever annual number of corporate failures (20,067), there are some warning signs for the economy.
The quarter saw an increase in business failures in 11 of the 34 sectors Experian monitors, most notably Agriculture, Banking & Financial Services, Post & Telecommunications and Business Services – the sector with the highest number of failures, accounting for almost a quarter of the total.
Twenty-four businesses in the agricultural sector failed between July and September, an increase of almost 85 per cent on the same period last year. The year-to-date figure confirms a miserable year for the sector, with failures up some 64 per cent (59 business failing to date) compared to the first three quarters of 2006.
There was a large jump in the number of Post & Telecommunications businesses failing in quarter three 2007 (62 compared to 31 in quarter three 2006), whilst a 33 per cent increase in Banking & Financial Services insolvencies highlights the difficult trading conditions that existed even before the impact of the credit crunch filters through.
But, despite a wet summer and a very poor first half of the year, there was a slight recovery in the Hotel and Leisure and the Retail sectors from July to September. After suffering a 16.3 per cent increase in insolvencies in the first half of the year, a better performance in quarter three saw 15.5 per cent fewer Hotel & Leisure businesses failing than in quarter three 2006, with 9.6 per cent fewer Retailing businesses (Food and Non-food) becoming insolvent over the same period.
Tony Pullen, Managing Director for Experian’s Business Information division, said: “On the surface, the continued fall in corporate failures in 2007 is positive news. But the current improvements do have to be seen against the backdrop of one of the worst ever years for business failures last year and it’s clear that a number of sectors are still struggling.
“With the administrative problems over EU subsidy payments and adverse weather affecting crops, we did predict this increase in failures in the Agricultural sector last quarter. Unfortunately, with foot-and-mouth and bluetongue disease now hitting livestock farmers, it does appear likely that this position will get worse before it improves.
“Retailing, a key economic barometer, has shown a marginal improvement year-on-year. However, the combination of warm weather over the August Bank Holiday hitting sales and shop visitor numbers and the five increases in the interest rate now starting to bite, it could be a difficult final quarter for retailers since a good performance in the run up to Christmas plays a critical role in overall annual performance.”
Of the 34 industries reviewed by Experian, 11 recorded an increase in corporate failure in the third quarter of 2007, four were unchanged and 19 recorded a decline. Sectors experiencing a substantial decline in business failures during quarter three included Building Materials (down 69.2 per cent), Hiring and Leasing (down 56.8 per cent), Insurance (down 56.3 per cent), Servicing and Repair (down 42.9 per cent) and Textiles and Clothing (down 40.3 per cent).
Other sectors seeing corporate failures increase in the second quarter included Property (up 18.0 per cent), Food Manufacture (up 10.7 per cent) and Utilities (up 40.0 per cent).
Tony Pullen adds: “These are difficult trading times for businesses with very mixed messages coming from the economy. Insolvencies are continuing to fall, which is good news, but it’s as yet unclear what the true impact of the uncertainties in the financial markets will be. The clearest message for businesses, though, is to act now to take preventative measures to gather information and insight into their customers to protect themselves. That means credit checking customers and suppliers, taking steps to improve their cash flow and reduce exposure to bad debt and ensuring they are getting the best returns on any marketing investment.”
Business failures increased in five regions from July to September 2007, listed below in order of increase:
•Northern Ireland - up 64.3 per cent
•East Anglia – up 22.3 per cent
•West Midlands – up 13.6 per cent
•North West – up 1.0 per cent
•East Midlands – up 0.4 per cent
In contrast, eight regions escaped with a fall in business failures, listed in order of decline:
•Scotland – down 14.6 per cent
•Wales – down 13.7 per cent
•South West – down 13.6 per cent
•City of London – down 11.6 per cent
•North East – down 4.0 per cent
•South East – down 3.6 per cent
•London – down 2.9 per cent
•Yorkshire and the Humber – down 2.6 per cent
There were few significant changes in the type of business failures recorded over quarter three 2007. Voluntary liquidations fell again, this time by 3.1 per cent compared to quarter three 2006. Receiverships also continued to fall, but by a much lower 3.3 per cent, whilst compulsory liquidations continued to increase slightly (up 3.6 per cent). Administration orders and voluntary arrangements remained almost static at 0.6 per cent and there was no change in the number of firms seeking voluntary arrangements.