Major credit insurer predicts 20 per cent rise in firms going bust

The credit insurance giant Euler Hermes has upgraded by more than 10 per cent its forecast for the number of UK companies that will hit the buffers this year.

Fabrice Desnos, its UK chief executive, said it forecasts that there will be about 23,400 corporate insolvencies across all sectors in the UK this year, a increase of between 18 per cent and 20 per cent on last year's 19,484 figure.

But just six months ago, Euler Hermes was forecasting that there would only be an 8 per cent increase in corporate failures in 2008 in the UK. The figure compares to a forecast of a 15 per cent increase in corporate insolvencies worldwide in 2008, compared to last year.

Mr Desnos said there were a number of factors behind its gloomy forecast for the UK, such as banks not being willing to prop up struggling businesses, rising inflation and falling supply and demand for goods and services.

"Bank support is more difficult to secure. There is no escape route, you will not find a private equity company or a management buy-out," he said.

"Supply and demand have been hit quite strongly in all directions. The supply of credit has reduced dramatically and essentially from banks." Euler Hermes is the UK's biggest supplier of credit insurance to companies, such as retail suppliers which take out insurance to protect themselves against the risk of non-payment.

In particular, Mr Desnos said that the UK retail and construction sectors would be hit the hardest. "Definitely retail and construction are the ones we are most concerned about. And it is the companies around these sectors, such as in haulage, that will [also] be hit," he said.

Furniture retailers, such as ScS, have blamed the "unexpected and sudden withdrawal of credit insurance from the market", for its financial woes, although many other small to mid-sized retailers have had their suppliers' insurance cover cut.

But he stressed that Euler Hermes is still providing the same amount of cover to companies in the UK as it was six months ago, but hinted that it was being more selective about who it insures and the levels it provides. "We are just trying to pick the winners and losers," said Mr Desnos.

Euler Hermes, which has a 36 per cent share of the UK non-food retail market, has billions of pounds of cover in UK retail and provides cover to tens of thousands of suppliers to trade with non-food retailers.