UK economy on the up, report suggests

On the up? Equifax has tentatively suggested the UK economy might pick up next quarter

Company failures in the UK seem to be slowing down, according to a report from business information specialist Equifax, leading it to speculate that the UK might start to emerge from the recession in the third quarter of 2009.

Covering Q2 2009, the Equifax Business Failures Report showed an alarming 40 per cent increase in firms going bust compared to 2008, but a quarter-on-quarter comparison showed a more encouraging 2.2 per cent increase in Q2 2009 compared to Q1 2009.

Neil Munroe, external affairs director at Equifax, said: “While the year-on-year figures are pretty stark, this is not surprising. But I believe it is more relevant to look at how businesses are faring quarter by quarter this year.

“Undoubtedly, the recession is still having an enormous impact on business fortunes, with many organisations simply unable to survive against the onslaught of falling sales and restricted access to funding to cover the cashflow gaps.

“Our figures seem to suggest that we could have hit the bottom by the time we reached the end of the second quarter and in some areas there is an improvement, albeit small.”

However, Munroe was quick to hedge his bets: “Of course, the next question has to be whether we are going to see the sustained upturn of a V-shaped recession or whether this is just a small pre-summer blip and failures increase again, more typical of a W-shaped recession.”

On a regional basis, all regions apart from Scotland showed a year-on-year increase in failures, but no region showed increases of more than 10 per cent, and four regions – the North East, Wales, Yorkshire & Humberside and the West Midlands – actually showed a decrease in the number of companies going under, Equifax said.

Both London and the West Midlands saw quarter-on-quarter insolvency increases of 9.4 per cent; business failures in the South West rose by 1.9 per cent and in the South East by 1.8 per cent.

In terms of sectors, the Equifax report claimed the retail sector had shown the greatest improvement, with an 11.8 per cent quarter-on-quarter drop in failures. The wholesale sector saw a 5.1 per cent drop in firms going under and the construction industry saw failures fall to 4.1 per cent. Transport and communications saw a four per cent drop quarter on quarter.

Still struggling, according to the report, were services, with a 10.9 per cent increase in failures and manufacturing, with a 2.9 per cent increase.

Munroe concluded: “It is crucial that those businesses 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.”