Insolvencies drop to lowest level for a year

The credit ratings company Experian will today issue a rare piece of upbeat economic news, with its latest survey of UK business's financial strength showing a fall in insolvencies.

The company will say that the rate of company collapses eased to 0.07 per cent in January, down from 0.11 per cent in December. Insolvencies were running at a similar rate this time last year.

Experian will also report that the improvement was most marked among the smaller firms that the Government has long hoped will be the engine of economic recovery. Businesses with 101 to 500 employees saw a failure rate of 0.1 per cent, less than half the 0.21 per cent rate recorded in December.

The company's Business Insolvency Index also highlighted an improvement in the financial health among businesses – from a rating of 83.73 in December to 84.01 in January. However, although most business segments show some degree of improved health on a year earlier, Experian will warn that the insolvency rate of firms with more than 501 employees reached 0.2 per cent in January – a significant rise on the 0.07 per cent of the year before.

The news comes against a relatively poor economic backdrop for the UK, with growth figures for last year revised down and fears that the current quarter may prove to be the second to show a fall in growth.

Max Firth, UK managing director for Experian's Business Information Services arm, said: "The fall in the overall rate of insolvencies has taken it back down to the level it was at a year ago, which is certainly positive. January generally tends to be a good month, with many businesses benefiting from the Christmas trade. When coupled with steady improvements in the underlying financial strength of businesses, it means that we can entertain some cautious optimism for the months ahead."