Third quarter UK insolvency numbers are out from the Insolvency Service confirming the grim reality facing small business.
The numbers show 4,001 liquidations in the quarter, an increase of 10.5 per cent on the previous quarter and a 26.3 per cent on the year.
In individual insolvencies there was an increase of 8.8 per cent on the previous quarter to 27,087. But there was a marked fall in the number of people entering IVAs (those arrangements heavily advertised on TV which make bankruptcy sound socially acceptable) as lenders became more reluctant to enter the agreements, with those that did setting much stricter terms.
Howard Archer, Chief UK & European Economist, at Global Insight, explains it could reflect the fact banks are increasingly entering into informal debt management plans to stave off insolvency.
His take on the numbers:
There can be little doubt that the marked rise in the number of individual insolvencies in the third quarter is only the beginning of the storm as recession, faster rising unemployment, higher debt levels, and more and more people being trapped in negative equity will exact an increasing toll over the coming months.
And his view on company liquidations, is equally pessimistic:
Meanwhile, the number of company liquidations jumped 10.5% quarter-on-quarter and 26.3% year-on-year to 4,001 in the third quarter of 2008, which was clearly a consequence of the toxic combination of markedly slowing demand, elevated input costs and very tight credit conditions. Although lower energy and commodity prices are easing the pressure on input costs, company liquidations seem certain to surge over the coming months given the likely depth and length of the recession. We expect the UK economy to contract up to, and including, the third quarter of 2009 resulting in an overall GDP decline of 1.5%. Furthermore, we expect the eventual recovery to be only gradual.
If the 2002 numbers depicted in the graph are anything to go by, it certainly looks like the UK hasn’t even come close to what can be expected to befall the economy insolvency wise.