Levelling off in rate of insolvencies sure to prove false dawn

This is to be welcomed but should definitely not be interpreted as a sign that the worst is over. Indeed, the worst may be yet to come.

There have been three key indicators in the last few weeks which could be interpreted as a sign that things will get worse before they get better.

Firstly, UK unemployment figures rose this week to their highest level since December 1994, and this is before the proposed major cuts in the public sector have been implemented. There is little doubt that we can expect the unemployment figures to continue to rise for the rest of this year and into 2011.

Rising unemployment and reduced public sector spending have a knock-on effect on the economy by dampening down expenditure, increasing concern among the public and consequently making them more cautious about spending. Growth in an economy is often determined by confidence by the public that things will get better. If people don't believe things will get better then this can often be a self-fulfilling prophecy.

Secondly, house prices are rising, or so the headlines stated recently. But the volume of sales was less than half of the number from three years ago, price rises are localised and many of the sales were distressed sellers rather than those who had simply decided to move on.

With interest rates at record lows for over a year now it is more remarkable that house prices have not shot up in value. The truth is that the housing market remains an area of considerable caution for both individuals and for lenders and there is no sign that there will be a repetition of the housing boom which occurred in the years prior to the collapse in 2007-8.

Therefore those who believe that we will be able to bail ourselves out with rising equity in our homes are sadly deluded.

Finally, we now have a new government which has promised its first budget within 50 days. Therefore, by the end of June we will know precisely what levels of cutbacks are proposed by the coalition government.

There won't be any good news but there will be some very negative spending cuts, attempts at revenue increases, and a plan to stabilise the UK finances in a relatively short timescale.

All of this will ultimately benefit the economy in the long term but in the short term for many people there will be hardship. For one of the key findings of the recent personal insolvency figures was that there are still individuals who have racked up enormous levels of debt over a considerable period and have, presumably, simply been trying to hold on until the economy gets better, their house goes up in value, or they receive a massive increase in their wage packets.

Unfortunately none of these things will have happened and you find people with debts of hundreds of thousands of pounds now being made bankrupt. The assumption would be that such individuals would have found themselves in the insolvency process at a much earlier stage of the recession.

That they are still appearing indicates to me that we have very large numbers of individuals who have accrued eye watering amounts of debt who are only now coming forward to become part of the bankruptcy statistics. This could mean, therefore, that they are simply the tip of the iceberg and we will have many more similar cases and consequently large numbers of insolvencies in the years to come.

Bryan Jackson is a corporate recovery partner with accountants and business advisers PKF.