Business insolvencies at seven-year high

The number of businesses going bust hit a seven-year high in the final months of 2001, taking the shine off separate figures pointing to an emerging industrial recovery.

The number of businesses going bust hit a seven-year high in the final months of 2001, taking the shine off separate figures pointing to an emerging industrial recovery.

The figures came amid warnings that the impact of 11 September had still not been felt and fuelled fears the global economic downturn was now eroding the health of the UK's once-booming services sector. The number of insolvent companies in England and Wales rose to 3,798 in the fourth quarter of 2001, the Department of Trade and Industry said.

This was a jump of 1.8 per cent on the previous quarter and 2.6 per cent higher than the same period of 2000. It was also the largest number in any three-month period since the third quarter of 1994. Analysis by accountants PricewaterhouseCoopers (PwC) showed that once receiverships and voluntary administrations were included, the total number of failures had jumped 7 per cent in the quarter.

Nick Hood, a senior London partner at the corporate recovery specialist Begbies Traynor said he had seen a sudden jump in the number of struggling businesses seeking help. "It's almost as though someone has taken the lid off Pandora's box this last week," he said.

Mr Hood said his workload showed stress was building in sectors often affected at the beginning of a recession, including travel and leisure, printing, retail and recruitment. Despite a high street boom, the number of small retailers going to the wall was rising as the major chains cut their prices to maintain sales. He added that the time-lag with insolvency procedures meant it was unlikely businesses affected by 11 September would have been included in the figures. "That will come out in the current quarter or more likely the second and third quarters," he said.

Other insolvency experts pointed out that despite the rise, the number of failures as a proportion of total business was unchanged. Tony Lomas, a partner at PwC, said the banks had to take credit for a more "accommodative attitude". "If the market thought large swathes of businesses would recoil from the shocks to the international economy, there is not much evidence of this happening," he said.

The figures took the shine off separate figures indicating manufacturing was on the brink of recovery in the UK, Europe and the US. A poll of industrialists carried out in all three economic zones showed the pace of the decline in the industrial sector was slowing. In the US the ISM survey came within a whisker of showing its first expansion in 18 months, hitting 49.9 on an index where 50 equals growth. The UK index rose to a three-month high bolstered by a pronounced improvement in output, confirming economists' feeling that interest rates will stay on hold next week.