UK business failures will rocket over the next 18 months, but the technology sector is set to buck the trend as end users continue to step up spending on cost-cutting technologies.
That is the verdict of business advisory firm BDO Stoy Hayward, which expects the number of insolvencies among UK firms to surge by 18 per cent to 19,124 between 2007 and 2009.
This is far worse than its previous projection of 11.4 per cent made just six months ago.
BDO’s bleak predictions came as the Confederation of British Industry warned the economy is facing its toughest year since 1992. Growth this year will slow to its lowest rate for 17 years, while inflation will stay above three per cent, it claimed.
However, BDO said the impact of the credit crunch in the technology, media and telecoms (TMT) sector would be mitigated by rising investment in technologies that can cut costs. It expects failures in this sector to stay level at just over 1,400 in 2008 and 2009, before dropping to 1,356 in 2010.
BDO’s gloomy predictions for the wider market were sparked by the recent hike in energy and food prices, decreasing consumer confidence and falling house prices.
“This is a sure sign that the effects of the credit crunch are going to have a bigger lag than expected on UK business,” said Shay Bannon, business restructuring partner at BDO.
“Six months ago, there was hope that business would feel some respite if the Bank of England slashed interest rates. But spiralling inflation figures now mean this is unlikely in the short term.”
Paul Spencer, managing director of VAR Axial Systems, said: “A lot of end users are still seeing IT upgrades as a means of increasing efficiency and reducing costs,” he said.
“If you are going after a market sector that is still spending on things that are seen as cost saving and not a capital expense, you will prosper.”
However, Mark Ancell, head of intelligence at credit reference agency Graydon, disagreed with BDO’s upbeat predictions.
“We are certainly not seeing any downturn in insolvencies as this research would suggest. Until the end of May, the total number of insolvencies of companies we work with in the IT sector was 102. In the whole of last year, there were only 165 insolvencies,” he said.
Ancell said web resellers and small PC builders have been the worst hit, while corporate resellers had generally avoided the carnage.
Security firm set to become part of acquisitive Shearwater Group
Distributor merges three northern sites into one new hub in Warrington
Activist investor puts forward five director candidates as turmoil continues at security giant
Nima Green asks what is driving public cloud uptake in Germany