Failure rates will remain high until 2015 at earliest

FAILURE rates among British businesses are likely to remain above pre-recession levels until at least 2015, new research shows.

The latest Industry Watch report by accountancy firm BDO says that businesses are proving "increasingly robust in the tough economic climate," but some sectors are likely to be affected by a slow recovery and factors such as inflation and government spending cuts.

While the number of insolvencies dropped by 14.9 per cent from a record high of 26,200 in 2009, BDO's figures suggest that the level is likely to remain around the 20,000 mark for five years. There were 16,400 business failures in 2007.

The report uses economic forecasts by the Centre for Economics and Business Research (Cebr) to project data into the future, and suggests UK insolvencies will drop by another 6.3 per cent to 20,900 this year.

But a weak recovery, combined with the impact of government spending cuts, could see business failures increase slightly in 2012 before trending gradually downwards. Manufacturing, which outperformed other sectors in 2010, "continues to be buoyant", with insolvencies expected to fall below pre-recession levels by the end of this year, the report says.

In contrast, sectors reliant on consumer spending are more likely to experience a "long-tailed recovery". BDO's report shows that insolvencies in sectors such as retail and wholesale, personal services and leisure may well rise in coming years.

"This can be attributed to the recent VAT rise, higher commodity prices, weak income growth and high inflation, which have reduced consumers' disposable incomes," it says.