Warning of slowdown even as insolvencies fall

Mixed signals on the direction of the economic recovery emerged yesterday with the latest insolvency, production and economic forecast data.

On the upside, the number of personal insolvencies fell for the first time since 2007 in the second quarter and manufacturing activity continued to grow in June. But UK production fell and the rate of growth in the wider economy was forecast to have slowed over the latest quarter.

Gross domestic product (GDP) in the UK surged by 1.1 per cent in the three months to 30 June, according to the Office for National Statistics (ONS). But economists doubt whether this momentum will be maintained, given the austerity measures unveiled by the Government in June.

While the first decline in personal insolvencies since the final quarter in 2007 suggests the worst is over for households, industry experts warned yesterday it could be a false dawn.

Tim Moss, the head of loans and debt at moneysupermarket.com said: "Many people are just about making ends meet due to the low Bank of England interest rates keeping the cost of mortgages down. However, the only way the base rate can really go is up, and when this happens we could see many households tip over the edge as a result."

The Government's Insolvency Service said that 34,743 people were declared insolvent in the second quarter. This comprises bankruptcies, individual voluntary arrangements and debt relief orders. The latest figure was down on the 35,682 in the first three months of this year, although it was actually up by 5 per cent on the second quarter of 2009.

There was further welcome news on company insolvencies. The number of firms folding in the second quarter dropped by 19.1 per cent to 4,080 on the same period in 2009.

However, the number of firms collapsing into liquidation was actually up by 0.5 per cent on the 4,060 in the first quarter of 2010.

But Steven Law, the president of R3, the insolvency trade association, expects a larger increase in corporate insolvencies may not show until the end of this year or next. This is partly due to the £5.13bn of tax payment delayed under HMRC's Time to Pay scheme.

It was a similarly mixed message from the National Institute of Economic and Social Research (NIESR) The economic think-tank said economic growth slowed to 0.9 per cent for the three months to 31 July, following 1.1 per cent to the end of June.

The NIESR said its track record of producing early estimates of GDP suggests it has an error rate of between 0.1 to 0.2 per cent.

In the industrial and manufacturing sectors there were reasons to be fearful and cheerful. UK production, including utilities and energy extraction, were down by 0.5 per cent in June on the previous month.

However, the ONS said this fall was largely the result of oil and gas companies carrying out maintenance work on their rigs and equipment earlier in June, instead of August. The annual rate of production rose by 1.3 per cent in June. The level of manufacturing activity in the UK's factories rose by 0.3 per cent, month on month, while the annual rate soared to 4.1 per cent.

The uplift was driven by a 12.9 per cent rise in the machinery and equipment industries and a 9 per cent jump in the transport equipment industries.

The ONS also said factory gate inflation, focused on the cost of raw materials, climbed by 1 per cent in July.