Slowdown leads to insolvency rise

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The Independent Online
CORPORATE insolvencies have hit a three-year high, new figures revealed, with more expected in the coming months as the economy continues to slow.

According to the Department of Trade and Industry, there were 3,346 company insolvencies in the final quarter of 1998. This is 6.8 per cent higher than the same period in 1997, and the largest quarterly total since early 1996.

Insolvency experts warned that yesterday's jump in the figures was just the tip of the iceberg. Economists regard insolvency data as a lagging rather than a leading indicator of activity - it takes time for a slowdown in demand to feed through into corporate profits.

Steve Hill, an insolvency expert at the accountancy firm PricewaterhouseCoopers, predicted that insolvencies could surge by as much as 40 per cent over the next two years.

According to the PwC economic model, corporate insolvencies will rise from a total of 13,203 in 1998 to 16,000 in 1999 and 18,800 in 2000. If UK economic growth turns out to be lower than expected, the picture could be far worse - the PwC model assumes that the UK avoids outright recession.

Mr Hill said: "Although gearing levels are certainly lower than in 1990, the most vulnerable sectors include construction, hotels, restaurants, engineering and transport. It is a very difficult time for many companies."

A separate study out yesterday found that the slowing economy was continuing to undermine employment prospects. Latest figures from NTC Research revealed falls in demand for both permanent and temporary staff.

The NTC figures - produced on behalf of the Federation of Recruitment and Employment Services - pointed to a further easing of pay pressures.

The survey showed that the rate of growth of pay for both permanent and temporary staff slowed to the weakest seen in the 16-month history of the survey. Skill shortages are also starting to ease, NTC said.