Bank of England to show no mercy as firms go under
Base rate is set to remain at 5 per cent this week, while official figures reveal corporate failures could reach a staggering 17,000 this year
Sunday 31 August 2008
The Bank of England is expected to ignore pleas for a cut in rates this week, despite warnings that the number of companies set to go under in Britain this year could reach 17,000.
The cost of borrowing should remain at 5 per cent even though figures – collated from official statistics for the first six months of 2008 – show that failures among companies could rise by a staggering third over last year's total of 12,507.
There's worse to come, insolvency experts warn. Figures for the 1990s show that company failures do not seriously escalate until the second and third year of a recession. Britain has yet to officially lurch into recession, defined as two quarters of negative economic growth.
Ian Jones, a partner in the Manchester-based insolvency practice JLD, said: "The number of failing businesses we have been asked to deal with has tripled from July last year to this. Few business owners throw in the towel straight away but companies reach a point where they simply can't carry on. Our recent three-fold increase could easily go to four- or five-fold."
InsolvencyInfo, which analyses administrations and receiverships, said that insolvent liquidations would hit 17,000 this year, should the trend of the first six months continue.
Insolvency practitioners have privately accused some of Britain's biggest firms of using strong-arm tactics on their smaller suppliers and ditching long-term suppliers to gain the slenderest increase in their own profit margins.
Receiverships in the UK soared from 77 in the second quarter of 2007 to 177 in the same three months this year. But total failures are masked by the numerous companies opting for administration: the figure stands at 938 in the quarter to end June, up 62 per cent over the same three months a year ago.
Despite the growing list of business failures, economists warn that the Bank will keep rates on hold when it meets later this week. Michael Taylor, senior economist at Lombard Street Research, said: "I don't think there should be a cut in rates in the near term. Inflation is heading towards 5 per cent, far ahead of target and rising. Ultimately, the Bank of England's job is to control inflation."
Graeme Leach, chief economist at the Institute of Directors, said: "The most they could possibly do is make a quarter-point cut and that is not going to make any difference to growth."
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