Insolvencies to rise by 10%

Posted on January 24th, 2011 | Categories - News

Insolvencies may increase this year as a result of public sector budget cuts.

Over £52 billion of debt is owed to lenders by UK firms.

The number of UK businesses facing financial difficulties has increased to its highest level in the past two years, according to insolvency specialist Begbies Traynor.

Just under 150,000 firms battled with serious monetary problems in the last quarter of 2010 marking the first year-on-year rise in the past seven quarters.

Budget cuts recently made by the government were said to be worsening the issue.

Ric Traynor, chairman of Begbies Traynor said: “The figures demonstrate that the sectors most reliant on government spending are already feeling the impact of public sector cuts”.

He continued: “With the full implementation of budget cuts only starting to show through in these figures, public sector-exposed sectors are likely to face significant increases in the level of corporate failures over the course of 2011”.

The research predicted that insolvencies will rise by 10% in 2011, which equates to over 23,000 British firms being affected.

It also outlined a 20% rise in the number of businesses dealing with “significant” or “critical” financial problems between the third and fourth quarter of 2010 adding that there were “real signs of distress” among UK enterprises.

A collective £52 billion was found to be owed to creditors by the number firms experiencing financial problems. The report also showed that lenders are beginning to lose their patience with debtors.

Mr Traynor said: “For smaller businesses, we are entering the darkest hour before the dawn, as they face the dual challenges of weak domestic demand and greater pressure from larger competitors and business customers looking to preserve their own profitability”.