Fewer UK businesses set for collapse

Fewer British businesses are set to go bust this year than during 2003 as the UK economic recovery gathers pace, a report claims today.

Business advice group BDO Stoy Hayward said an average of 310 firms were set to collapse each week in 2004 – compared with 340 over the previous 12 months.

This resilience was due to robust demand from overseas and the consumer spending boom, but BDO said the economic cycle may be peaking and a “bumpy ride” lay ahead for UK firms.

The group predicted that a total of 15,984 firms will go under during 2004 - down from 17,546 last year.

Higher fuel taxes and the impact of the minimum wage is expected to lead to the number of failed businesses rising to around 16,600 by the end of 2006.

In addition, BDO said falling house prices and the prospect of higher interest rates will encourage households to rein in their budgets.

Shay Bannon, business recovery services partner at BDO Stoy Hayward, said: “The current favourable business climate is likely to encourage firms to grow to fulfil demand, but this economic cycle could well be peaking.

“Companies that have borrowed heavily should assess their situations now and form plans to counteract the effects of a possible downturn.”

Despite gloomy predictions from unions, BDO said fewer manufacturing firms were set to go bust in 2004 than at any time over the past decade.

The group predicted that strong domestic and international demand will limit the number of manufacturers collapsing to 2,210 this year, down 9% on 2003.

But the consumer slowdown will start to bite companies in the leisure sector next year – despite a recovery in UK tourism and higher corporate spending on entertainment.

With the British public set to cut back on drinking and eating out, the failure rate is expected to jump to 0.8% by 2006.

This is the highest since 1996 as an expected 2,420 companies are forced out of the sector over the next two years, BDO said.