RTTNews - Business failures in the U.K. may rise to a record 36,200 this year led by rising unemployment and falling disposable income growth, a latest report by accountants and business advisors, BDO Stoy Hayward LLP showed Wednesday. The report also said there would be a sharp reduction in consumer spending.
According to the business services firm, low interest rates and policy measures aimed at boosting the economy are not likely to halt the rate of UK business failures until at least 2011. Moreover, the picture in 2010 would be much worse with 111 businesses failing everyday, taking the full year number to 40,400.
Further, the report forecasts consumer spending to decrease 4% this year, threatening on sectors most reliant on disposable income, which include retail, leisure and personal services.
According to the report, the contraction in consumer spending will mean that 4,300 retailers will become insolvent in 2009, up 33.3% from 2008. BDO Stoy Hayward forecasts this figure to peak to 7,335 in 2010. Business failures in the personal services sector are forecast to increase 55.9% this year to 1,910, and rise to 3,140 in 2010 as consumers tighten their belts. In the leisure sector, 2,550 businesses are expected to fail in 2009 and 3,690 in 2010.
Employment in the U.K. is expected to drop 3.5% in 2009, the steepest decline since comparable records began in 1971, with a further 1.9% drop in 2010, the report said.
The report also said private sector investment is set to nose dive this year by 18.9% as firms delay or cancel capital expenditures on weaker prospects for growth and continued troubles in accessing finance. This will push up business failures in sectors relying on business-to-business demand, such as telecoms, media and technology, where 2,500 businesses are expected to fail this year.
Given the 1.9% contraction of the British economy in the first quarter, the report forecasts a 4.5% contraction in economic output in 2009. That would be the steepest reduction in economic activity since the 5.1% fall in 1931.
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