Corporate insolvencies to rise in 2005

The number of business failures rose in the first three months of 2005, up for the second straight quarter, while weak consumer confidence and the collapse of MG Rover are set to trigger more insolvencies this year, according to Experian.

Research published yesterday by the credit-checking specialist showed the retail industry in particular had been hit hard by lower consumer confidence and spending. Business failures in the food retail sector rose 53 per cent year-on-year, with non-food insolvencies up nearly 30 per cent.

Experian said the trend of rising bankruptcies is set to continue, particularly in the automotive sector, as rising interest rates and sluggish consumer spending are compounded by the demise of Rover, the 100-year-old carmaker.

There were 4,168 corporate failures in the first three months of 2005, up 1.9 per cent on the 4,092 recorded in the first quarter of 2004. The latest quarterly figure follows a 0.2 per cent rise in failures in the fourth quarter of 2004.

Voluntary liquidations rose by two per cent over the same period - the first time they have risen in more than two years.

"The recent food scares over the illegal dye, Sudan I, and increasing competition from the majors (supermarket chains) in the convenience sector could well have played their part in the difficulties faced by the (retail) sector," said Phil Cotter, managing director of Experian's Business Information division.

Fifteen out of 34 industries surveyed by Experian recorded an increase in business failures in the quarter in sectors such as retail, servicing and repair, agriculture, forestry and fishing and hiring and leasing.

The motor traders industry was one of 15 sectors to see a decline in business failures, but Cotter said the demise of MG Rover threatened to turn that around in coming months.

The carmaker collapsed with the loss of up to 5,000 jobs after failing to secure a rescue deal with China's Shanghai Automotive Industry Corp.

Around 15,000 jobs from autoparts suppliers in Britain may also be affected by the collapse at Rover's Longbridge plant, which lies close to three constituencies in which Prime Minister Tony Blair's Labour Party holds only slim majorities.

"It's bound to cast a shadow. There is a combination of things happening now which makes the outlook for that sector fairly uncertain," Mr Cotter said.

"We would anticipate further liquidations or insolvencies as a direct result of Rover's collapse through their supply chain.

"A lot of small businesses are also obviously going to suffer as a result of Rover closing down," he said.

Mr Cotter said the fallout from Rover's collapse would be felt throughout the West Midlands, a region which recorded 372 business failures in the first three months of the year - up 8.8 per cent on 2004.