Insolvencies up 20% but it’s not entirely gloomy

INSOLVENCY rates among North East businesses have risen over 20% in the last year, although the region’s manufacturing is defying the slump with business failure rates in this sector falling.

INSOLVENCY rates among North East businesses have risen over 20% in the last year, although the region’s manufacturing is defying the slump with business failure rates in this sector falling.

And the findings from PricewaterhouseCoopers suggest the picture is not as bleak as first seems with business failure rates falling from the first to the second quarter of 2011.

Corporate insolvencies dropped from 4,216 to 3,531 from the first to second quarters, continuing a trend that began at the end of last year. Despite the 16% decrease, the number is still 2% higher than the same period last year. Like all regions, the North East and Cumbria reported a decrease from the first to second quarter.

However numbers were 21% up on last year, while the North West showed an 11% increase and the West 8%.

North East PwC director Sean Hamilton said: “The UK economy is by no means out of the woods yet as we continue to see retailers running into financial difficulties and shutting up shop. The impact of the Government’s public sector spending cuts, which have yet to be felt, are likely to have a further adverse effect on consumer spending and especially on those companies supplying the public sector.

“The trend of falling corporate insolvency levels during the recent recession has been rather atypical but this is partly due to a combination of factors which have provided breathing space for many struggling businesses.

“Persistently low interest rates, increased time to pay agreements by HMRC, and a supportive attitude from secured lenders anxious to avoid the potential crystallisation of losses on their balance sheet, have all helped. The main short-term challenge is low consumer confidence, but the greater long-term challenge is the wall of debt that needs refinancing over the next few years.”

Retail and hospitality and leisure sectors both showed drops on the previous quarter, but were up 9% and 10% respectively on last year. In total, 376 retailers and 255 hospitality and leisure firms entered insolvency, and more than seven times as many businesses with assets over £1m did compared to the same quarter last year.

Richard Dodd of the British Retail Consortium said: “Customers feel under enormous pressure from a range of rises such as energy bills coupled with slow wage growth. They’re very reluctant to spend on things they don’t need. It’s important that politicians realise how important retail is to the economy, and to support it by not adding extra burdens such as regulation and excessive tax. Reviving consumer confidence is not something that can be achieved quickly. People are nervous about the state of the economy and their job prospects, but the cuts are necessary to deal with the deficit and put the economy back on a firmer footing.”

PwC says house prices are unlikely to recover until 2020, and added 584 construction companies became insolvent in the quarter. But manufacturing had a 27% drop in insolvencies compared to the first quarter of 2010, with 378 hitting trouble. It is a 10% drop on the second quarter of last year.

Tony Sarginson of manufacturing organisation EEF said: “Although the firms that are supporting some of the sectors such as construction aren’t doing so well, the vast majority supporting the oil and gas industries, the car industry and the defence industry are improving. This is consistent with what we’ve seen on the relative health of the manufacturing sector.”

 

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