From boom to bust in 2003

Link: New Act throws insolvency wide open

The latest comes from Grant Thornton, which claims to be winning huge volumes of insolvency work. It says profitability levels for private non-financial businesses have fallen to their lowest levels since 1994.

Such figures, GT claims, will ‘add credence’ to concerns that the UK can expect another bumper year for business failure. Mark Byers, head of GT’s restructuring and reorganisation practice, said: ‘The figures don’t make for good reading especially if compared to the early 1990s when the UK economy was in the middle of a full recession.’

Profitability levels are at a nine-year low of 11%, down almost 1% from the previous quarter. ‘In 1991, 1992 and 1993 profitability levels were down 9.5%, 9.1%, and 9.8% respectively, clearly illustrating a correlation between profitability levels and number of insolvencies which in those years reached record levels,’ said Byers. Certainly, last year was littered with profit warnings from big listed companies – including Xansa, Abbey National, Cable and Wireless and HP Bulmer – all of which served as a body blow to confidence going into 2003.

Other grim predictions came at the end of last year when D&B revealed statistics showing corporate failures were running at their worst rate for eight years.

D&B said its research revealed that liquidations – the measure of large company failures – rose by 11.3% in 2002.

At the time, D&B put the increase in corporate failures down to a slowdown in the global economy and in the UK. What happens next largely depends on where the US economy goes but with no recent change in interest rates to stimulate growth, there will be continuing gloom.

At the end of last year, Digby Jones, director general of the Confederation of British Industry, was warning that the government had not done enough to help business, citing rising business taxes, an increase in regulation and ‘patchy’ improvements in public services as issues.

However, observers warn against comparing current conditions with those that brought about the recession of the early nineties.

Inflation is low, interest rates are low and unemployment is no where near the levels of ten years ago.

GT’s Mark Byers said the impact of business failure on the economy was much less incisive than it was in the nineties. ‘Back then, the number of businesses becoming insolvent every year hovered around 2% of the total number of active companies whereas now the figure is much closer to 1.2%, mainly thanks to the sustained growth of the late 1990s when a large number of start-ups were created.’

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