A clear increase in sight

HEADNOTE

Simultaneous economic shocks and rising insolvencies worldwide

2007:-19%

The prolonged dynamism of the British economy was accompanied by a greater fall in insolvencies than expected, especially in Q2 and 0.3 of 2007. Overall, nearly 19,500

business insolvencies were recorded for the whole year for England and Wales, against more than 24,000 in 2007. This 18.9% drop was due above all to a very significant 35% drop in insolvencies on the part of the selfemployed, who the year before had seen the highest number of insolvencies since 1998 and who have been subject to a change in statistical treatment from Q4/o6. Company insolvencies accounted for nearly 65% of total business insolvencies in 2007, against 55% in 2006. These fell by an annual basis, with a trend change in H2 (+2.4% against Hi), a period during which growth in business profits also weakened. In the end, more than 12,400 companies filed for insolvency, out of a total active company population for England and Wales of around 2.25million.

Sector analysis

Sectoral data, now being adapted by the authorities to the international SIC 2003 standard, are not yet available for the recent period. The latest published data stop at Q3/06. They show, however, that the sectoral breakdown of bankruptcies reflects the make-up of the British economy overall, and this is true for the manufacturing industry (which accounts for around 9% of the business population and 9% of insolvencies) and more widely for business services. Retail and wholesale distribution shows a lower insolvency rate than the average, but did see some major insolvencies in 2007. By contrast, the construction sector often shows a proportionally higher insolvency rate.

2008-2009 outlook: an increase in insolvencies

Insolvency figures for Q1/08 confirmed the dual trend seen in H2/O7: a rise in company insolvencies and a gradual easing in the fall in bankruptcies among the self employed. The slowing in GDP growth expected by 2009, which was confirmed in Qi/o8, should consolidate this trend, especially in that it will affect the two main drivers of the British economy: services and construction. After hitting the lowest point in the history of the series, insolvencies should rise by 10% to an annual figure of 21,000 in 2008 and to more than 23,000 in 2009, against an average of 23,800 for the last ten years.

IMAGE GRAPH1

Number of insolvencies

Insolvencies and GDP-Annual change, in %