Bankruptcies to rise, with retail and leisure hit hardest

Slower economic growth and higher interest rates have pushed up the number of business failures and will continue to do so throughout 2006, a leading business consultancy says today.

The latest BDO Stoy Hayward Industry Watch predicts that a total of 16,360 businesses will go to the wall this year, an increase of 3% on 2004 and an average of 315 a week. That number will rise 5% to 17,236 next year, it forecasts.

In 2004 the number of business failures was down a quarter from 2002 but that is changing.

"UK businesses are facing a difficult combination of circumstances as slower economic growth, higher interest rates and increased inflation raise the pressure," says Shay Bannon of BDO.

The consensus among economists is that the British economy will expand by only 2 to 2.5% this year, still healthy but below the 3.1% of 2004 and less than the 3 to 3.5% that the Treasury is forecasting. Consumer spending has slowed particularly sharply and BDO predicts that the retail and leisure sectors are likely to be hit hardest with consumer confidence in decline.

"An abrupt end to the UK consumer boom is expected to push retail business failures up some 23% to 1,178 by the end of 2005, al though they will remain at an historically low level," it said.

It added that expected interest rate cuts from the Bank of England would ease the pressure on the retail sector throughout 2006 and lead to a 14% drop in business failures in the sector next year.

It says there is also an unsettled outlook for the leisure industry, with 1,223 businesses in the sector expected to fail in 2005 - an increase of 16%. The strong pound has put a halt to the rise in the number of tourists visiting the UK, it says.

In contrast, the technology, media and telecommunications sector is gradually picking up, with the property and construc tion sectors also seeing a temporary decline in the number of business failures. Although the housing market is weak, a recovery in demand for office space and public sector construction projects are underpinning the sector.

For 2007, BDO sees business failures lower than in 2003 despite seeing economic growth of only 2.1%.