Failures up, 'but it's no recession'

The number of insolvencies is increasing in the printing, recruitment, and marketing sectors, according to a leading accountancy firm.

Manufacturing being in recession, the troubles in the new economy and the difficulties service industries are experiencing will stimulate fears that economic downturn is getting worse.

Government figures show a 9 per cent increase in the number of insolvencies in the second quarter of this year. Louise Brittain, insolvency practitioner at Baker Tilly, said: "Business failures are mainly in the manufacturing, printing, human resources and marketing sectors." The latter three, she said, are usually the first areas cut by a company when it is cost-cutting.

She said the retail sector, which some had expected would be the next to be hit, has not been hurt. But many of Baker Tilly's clients are owner-managed businesses, which tend to be smaller than average companies.

Consultants working with larger businesses are seeing a different trend. Jim Tucker, who works in KPMG's insolvencies and corporate restructuring department, said: "We are seeing lots of work in the automotive sector, particularly the retail and supply chain areas, and also in telecoms and electronics."

He is also helping to restructure a range of telecoms companies, large and small.

Mr Tucker said manufacturing companies with heavy exports are struggling because of the exchange rates, although recent interest rate cuts will benefit them.

KPMG's official research shows that a number of sectors are now showing increased signs of distress, more profit warnings, redundancies and significant restructurings. Those victims include transport and distribution, automotive, electronics and telecoms. The number of receiverships increased by 3 per cent in the first six months of this year compared to the same period for last year.

John Butler, a UK economist at HSBC, said the UK economy should steer clear of recession, despite these initial negative indications, because retail sales will stay buoyant.

The Department of Trade and Industry says the increase in insolvencies is nothing to do with an economic downturn, but merely a product of the "enterprise culture".

A spokesperson said: "The rate of insolvencies as a percentage of registered companies has been falling consistently to less than half the level in 1992 and has remained unchanged at 1.1 per cent for the past six quarters.

"Since 1997, the number of active companies has been increasing. There are more than 30 per cent more active companies in 2001 than in 1997."