The overall increase in business failures for the whole of 2008 compared to 2007 is a staggering 18.2%. Equifax External Affairs Director, Neil Munroe, believes this shows the real consequences of the downturn in consumer confidence, combined with continued restrictions on lending to consumers and businesses.
“To see the number of businesses going bust for the whole of the year rise so significantly is very worrying. But what is equally worrying is the increases in failures in the last quarter of the year. Comparing Quarter 4 2007 with Quarter 4 2008, there is an increase of 32.1% in businesses going into administration. And further evidence is provided of how the downturn has impacted on businesses through the year when we compare Quarter 4 2008 with Quarter 3 2008, with a 24.2% increase in failures.
“These figures reinforce what every economic commentator is saying - that we are not yet at the turning point of the recession, with the numbers of businesses going to the wall highly likely to continue to increase in 2009. It is, therefore, very clear that the efforts from Government, such as the loan guarantee scheme announced today and the initiatives by banks such as fixing fees and releasing more credit, will be absolutely crucial, especially for smaller businesses struggling with cashflow management.”
Key Sectors Struggle
Not surprisingly, the Construction sector saw the greatest year on year increase in failures, with 32.4% more businesses folding in 2008 compared to 2007. And the last quarter of the year was particularly hard for this sector with a 54.7% increase in failures compared to the same period in 2007.
The Retail sector was the next hardest hit, with a 23.9% increase in failures for the whole of the year. And, as all the headlines in the last month have proved, the last quarter of 2008 was very difficult for the sector with a 42.5% increase in failures compared to the same period in 2007.
The Transport & Communications sector, which is heavily dependent on the Construction and Retail sectors for its business, saw a 17% increase in failures in 2008. The Services sector saw an 13.8% increase in businesses going into administration throughout the whole of 2008, compared to 2007, closely followed by the Manufacturing sector at 11.2%.
The sector that appeared the most resilient in 2008 was Wholesale, with a 7.2% increase in failures for the year as a whole. And this resilience appeared to hold through to the end of the year with only a 14.1% increase in failures in Quarter 4 2008 compared to the same period in 2007.
The Regional Picture
Around the country the overall picture for the year is very gloomy with only Scotland managing to see a drop in failures year on year – albeit of just 0.9%. The North East saw the biggest rise in failures year on year at 41.2% and this was even worse for the fourth quarter of the year with a year on year increase of 57.8%. Other Northern regions also struggled through the year with a 29.1% year on year increase in businesses failing in the North West and a 23.9% increase in Yorkshire & Humberside.
Aside from Scotland, the area of the country that showed the smallest increase in failures for the year was the East of England, at just 8.4%, perhaps reflecting the region’s lesser dependency on some of the core sectors affected by the downturn, such as construction, manufacturing and services.
And the two areas that are often the last to experience the real impact of a downturn also saw considerable increases in failures during 2008. London saw a 15% increase in failures year on year and a 25.5% increase in the last quarter compared to the same period in 2007. And in the South East 17.8% more businesses went bust during 2008 than in 2007, with a 31.8% increase year on year in failures in Quarter 4.
“With significant downturns in orders, combined with restricted access to credit for a wide range of business organisations, it is not surprising that the numbers of those that have simply had to close their doors for good has increased significantly in 2008 and particularly in the last quarter of the year, concluded Neil Munroe.
“It is clear that stimulus is needed from Government and the banks to inject funds into business lending to stem this flow of failures in 2009.
“It is also crucial that those businesses that are holding their own take the right precautions to protect themselves from some of the risks of these exceptionally tough trading conditions. They need to continue to use rigorous credit checks, alongside ongoing monitoring of the financial status of their customers and suppliers. By operating best practice and harnessing the power of the latest risk management solutions, firms can minimise the threat of bad debt and secure the future of their business.”