7th November 2008
News Category: Business Debt Management
As a full-blown recession looms ever nearer, today brings more bad news regarding the numbers of business failures in the United Kingdom. There has been a huge increase in the number of insolvent companies in Q3 2008. The Insolvency services reported that 4,001 companies failed. This represents a 26% increase in the number of liquidations from this time last year and the fastest rate of increase for 18 years. However, this figure is half of the number of failures during the previous recession of the early 1990s. The number of 'business rescue' style administrations and company voluntary arrangements, rose by 65%. These programs are designed to save the firm from entering into liquidation and winding up. Figures released by the Government showed also showed that there were 27,087 individual insolvencies in England and Wales between July and September, (representing an 8.8% increase from last quarter).
The statistics also show that an increasing number of individuals declared themselves insolvent, (with one third opting for an Individual Voluntary Arrangement (IVAs) and two thirds choosing (or forced into) personal bankruptcy). Economists fear that as the economic downturn gets worse, even more people have will be forced into bankruptcy or insolvency. These figures demonstrate that the credit crunch is hurting both consumers and small businesses in the 'real economy - the credit crunch is not just a banking problem. Despite the shock announcement by the Bank of England's monetary policy committee to slash interest rates by 1.5% to 3%, the response from banks has been slow and lukewarm. Most mortgage lenders are waiting to see how the LIBOR interest rate changes, before making any announcements regarding lowering the cost of mortgage deals. Many small businesses are also complaining regarding the increased cost of business loans and overdraft interest rates, from high street banks. So far only Lloydstsb and Abbey have passed on the rate cut to borrowers. Banks are coming under intense media pressure to start lending after having received the cut on top of the billions injected into the money markets by the taxpayer.
The drop in consumer confidence due to be continued bad economic news around the world, is beginning to show up in the form of profit warnings from major retail stores on the high street. In addition, the number of new car sales has fallen which is a major indication of a collapse in consumer confidence. Consequently, products and services sold through small businesses is clearly taking putting pressure on start-up enterprises or overly geared firms that are struggling to meet debt repayments or extend credit facilities. There appears to be a close relationship between the increases the numbers of of personal insolvencies and the rate of unemployment and falling house prices. House prices have fallen 15% from last year's peak and estate agents are still reporting a collapse of buyer interest due to the credit squeeze and expected recession. Britain's dross domestic product has Already contracted 0.5% Since last quarter. One more quarter of negative growth will count as a technical recession - a mood point for the millions of struggling homeowners and small business people who are clearly experiencing the effects of a downturn already.