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Business failures leap as credit crunch hits companies

Experian reports first increase in business failures for over 12 months

Nottingham, UK, 7 April 2008 - The credit crunch finally appears to be having an impact on UK businesses, with corporate failures in the UK increasing for the first time in over 12 months.  According to industry figures released today by Experian^®, the global information services company, business failures in the UK increased by 8.5 per cent in Q1 2008, the first increase recorded since Q4 2006. 

In the first quarter of 2008, 4,798 businesses failed, 374 more failures than in the first quarter of 2007 and an increase of 124 on the final quarter of 2007.  The downturn also appears to be gathering pace across more industry sectors, with an increase in the number of sectors Experian monitors experiencing more failures compared to the last quarter of 2007.

The number of businesses failing in Q1 2008, 4,798, is the highest since Q4 2006 and the second highest reported in a single quarter since Experian began recording the figures in 1997.

Sector analysis

Fifteen of the 34 sectors monitored saw an increase in business failures over the quarter compared to Q1 2007.  In contrast, over 2007 as a whole, business failures increased in just nine sectors and in 12 sectors in the final quarter of 2007.

Agriculture (up 109.1 per cent), Banking and Financial Services (up 36 per cent) Food Retailing (up 35.9 per cent) and Textiles and Clothing (up 29.8 per cent) are bearing the brunt of business failures, with each of these sectors showing a significant increase in failures compared to Q1 2007.

Property (up 26.9 per cent) and Hiring and Leasing (25.8 per cent) were the other significantly impacted sectors.  In absolute numbers, the Business Services sector suffered most, with 1,061 companies failing in the first quarter – 99 (10.3 per cent) more than in the first quarter last year.

Tony Pullen, Managing Director of Experian’s Business Information division, commented: “These figures are hugely significant, highlighting the impact the continued credit crunch is having on businesses across the UK.  It’s the first overall increase in failures that we’ve seen for 12 months and demonstrates the nervousness there is in the economy.

“The farming industry is still suffering, with 23 businesses failing in the first quarter – double the first quarter last year. In its last release of figures at the end of 2007, Experian predicted that credit tightening could impact most on fast growing parts of the financial sector and property buyers dependent on cheap credit and these figures appear to be bearing this out.  On top of an increase in failures in Q4 2007, Banking and Financial Services and Property have again seen increases in Q1, with 34 businesses failures in the Banking sector and more than 150 in the Property sector being recorded.

“The message for businesses right across the board in this uncertain economic environment is clear. They need to exercise caution with regards to their risk exposure and the customers they choose to deal with.”

Regional trends

Looking at the regional split, eight regions saw an increase in failures and only four escaped with a fall in the number of businesses failing in Northern Ireland (up 51.9 per cent) and the East Midlands (up 53.6 per cent) are the regions most impacted, although East Anglia, the North West, Yorkshire and the Humber and the North East all saw business failures jump by more than 20 per cent.

The full regional breakdown of business failures in Q1 2008 is listed below:

·         East Midlands – up 53.6 per cent

·         Northern Ireland – up 51.9 per cent

·         North West – up 24.7 per cent

·         North East – up 23.1 per cent

·         East Anglia – up 22.6 per cent

·         Yorkshire and the Humber – up 20.2 per cent

·         London – up 13.4 per cent

·         Wales – up 3.8 per cent

·         South East – down 5.2 per cent

·         South West – down 7.5 per cent

·         Scotland – down 14.6 per cent

·         City of London – down 24.3 per cent

Tony Pullen concludes: “Company failure has far-reaching consequences for the broader economy and people’s livelihoods. Failed companies expose their suppliers to bad debts, which could push some creditors into insolvency themselves. It’s never been more important for companies to ensure they take every step they can to protect themselves, including checking to see if their customers are taking longer to pay their invoices – not just to themselves but to their other suppliers. A sharp increase in payment times should set alarm bells ringing. This doesn’t just apply to new customers. The majority of bad debts come from long-standing customers so regular monitoring of the payment trends of your most important customers can mean the different between failure and survival through these very difficult times.”

Businesses can visit www.experianbi.co.uk for information on how to avoid becoming an insolvency statistic.

                              CORPORATE FAILURES – QUARTER ONE 2008

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NOTES TO EDITORS:

Company failure has been derived from analysis of adverse notices received from Companies House that indicate that companies have little or no chance of recovering to a normal status in the future.  These notices comprise voluntary liquidations, compulsory liquidations, administration orders, receiverships and voluntary arrangements.

For more information, visit the Group's website on www.experiangroup.com.

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