Accountants see record business failures

The Industry Watch report by accountants and business advisers BDO Stoy Hayward said a record 36,200 businesses -- almost a hundred every day -- would fail this year, and an even greater number in 2010.

With the number of people out of work seen rising well into next year, the report forecast a 4.0 per cent fall in consumer spending in 2009 -- a factor it said would impact on sectors most reliant on disposable income, such as retail, leisure and personal services.

It forecast a 3.5 percent fall in employment in 2009 and a further 1.9 percent drop in 2010 -- a year when the report predicted that 40,400 businesses would go under.

"Business failures in Britain are rising unabated as the fallout of the economic downturn becomes ever clearer," said Shay Bannon, head of business restructuring at BDO Stoy Hayward.

"Consumer spending is set for a steep contraction in 2009 and households will continue to be hit by rising unemployment, weaker earnings growth and reduced perceived wealth levels due to declining asset prices."

The economy shrank by 1.9 percent in the first three months of this year and there are fears that the pick-up in bank lending that the government has been so eager to stimulate has failed to materialise.

The Bank of England's latest survey showed lending to corporates falling by 5.4 billion pounds in April, the biggest drop in 9 years.

BDO said government measures taken to help rescue the economy from the worst of the recession, including a bank rescue plan, drastic cuts in interest rates and fiscal stimulus packages, would begin in 2011 to "significantly slow down the rate at which businesses fail."

Looking at key sectors at risk, BDO said 4,300 retailers would become insolvent in 2009 -- a 33.3 percent increase from 2008 -- and the corresponding figure would peak at 7,335 failures in 2010.

"Other sectors relying on consumer spending will also be affected," it said. "Business failures in the personal services sector, which includes hairdressers and dry cleaners, are forecast to increase by 55.9 per cent this year to 1,910, and rise to 3,140 in 2010 as consumers tighten their belts."

In the leisure sector, 2,550 businesses are expected to fail in 2009 and 3,690 in 2010.