Personal bankruptcies at 10-year high

A rise of more than one quarter in personal bankruptcies during the first three months of 2004, revealed yesterday, has reignited fears about the scale of consumer debt.

The Department of Trade and Industry said the number of people going bankrupt reached a 10-year high of 10,665 in the first quarter, up by 27 per cent on the same period last year. The figures will be particularly alarming given the Bank of England's decision this week to increase interest rates for the third time in seven months. The base rate rose by a quarter-point to 4.25 per cent and is tipped to soar to 5.25 per cent over the next 12 months by some City economists.

Charles Turner, the director of business recovery at PricewaterhouseCoopers, said: "The introduction of the new bankruptcy regime, perceived by many as a softer option, is likely to result in a continued growth in personal insolvencies, particularly coupled with recent hikes in interest rates."

The number of people declaring bankruptcy between January and March was only 0.5 per cent less than in the previous three months, itself an 11-year high. The record stands at 10,942 bankruptcies in the first quarter of 1993, when Britain was emerging from the slump that put millions of households into negative equity after house prices collapsed. Vicky Redwood, UK economist at Capital Economics, said: "[The] figures are a reminder that even small rises in interest rates can have a significant impact on households - leading not only to further rises in bankruptcies, but ultimately to a sharp downward adjustment to household spending and borrowing."

Corporate insolvencies in England and Wales continued to ease following the Enterprise Act last September. The number of companies going bust during the first quarter of 2004 was 3,155, 14.3% less than in the previous three months.