Recession fears deepen as business failures increase

YESTERDAY BROUGHT fresh gloom about the state of the economy, with news of the first rise in business failures for six years. But one employers' organisation warned business against talking itself into a recession in 1999.

The number of business failures climbed to 38,634 in 1998 from 36,368 in 1997, according to Dun & Bradstreet. This was the first increase since 1992, at the bottom of the last recession.

Philip Mellor, an analyst at the business information service, warned: "I see this trend continuing for the next six months." Interest-rate cuts should then start to take effect, he said.

Mathew Farrow, head of the Confederation of British Industry's small business unit, said the figures confirmed other signs of an economic slowdown.

CBI surveys have become markedly more pessimistic in recent months, and the organisation has called for further interest-rate reductions.

But Tim Melville-Ross, director-general of the rival Institute of Directors, yesterday warned against taking too gloomy a view. Business leaders were in danger of talking themselves into a recession in 1999, he said.

"Unfortunately, we are particularly good as a nation at persuading ourselves that the economic situation is worse than it is. But I firmly believe that business is capable of preventing a recession simply by avoiding talking about it as if it were inevitable," he said.

The CBI agreed that the level of business failures remained much lower than during the last recession. The figure reached a peak of 62,767 in 1992.

"This supports the view that although things may get worse, the downturn will not be as long or as deep as last time around," Mr Farrow said. The CBI has itself warned of the risk that recession could become a self-fulfilling prophecy.

Separate figures yesterday suggested that consumer spending and the housing market have continued to hold up well, despite signs that confidence about the economy's prospects is slipping.

The Nationwide reported a 0.8 per cent rise in house prices in December, leaving the annual rate almost unchanged at 7 per cent. The building society said sales were 12 per cent down since the start of the year and confidence was weak.

But it predicted that the housing market was in a good position to weather an economic downturn. Some areas - such as Cambridge, Guildford and Islington in London - were still seeing annual price rises in excess of 20 per cent.

David Parry, head of planning at Nationwide, said: "The strength of household finances will help the housing market weather any downturn."

The British Bankers Association, whose members include 10 of the country's 15 biggest mortgage lenders, said their new lending to homebuyers was pounds 1.1bn in November.

This was above October's pounds 922m and above the recent monthly average - even though banks have been losing market share to the remaining building societies.

The BBA also reported a strong increase in credit card borrowing and personal loans, totalling pounds 6.5bn, in November.