Entrepreneurship dampened by perceived increase in business insolvencies

News release

Stephanie Dobson
Public Relations Manager, Business Information
+44 (0)115 992 2515 Tel
stephanie.dobson@uk.experian.com Email

Entrepreneurship dampened by perceived increase in business insolvencies
Proportionally far fewer firms are failing so far compared to last recession

Nottingham, UK,
15 May 2009 - Entrepreneurial spirit in the UK could be in danger of being dampened by the increase in company failures, despite the fact that the real rate of
insolvencies is still significantly lower than the rate seen in the recession of the early Nineties.  These are the findings of a new report published today by Experian®, the global
information services company.

Analysis in Experian’s Quarterly Insolvency Report and Distress Index from data specialists, pH, an Experian company, shows that the business birth rate (new registrations as a
percentage of the business population) dropped to 11% in 2008. This was the lowest rate since 1994 and nearly 5% down on 2007's rate.  Although more than 350,000 new
businesses were still registered in 2008, these declines were against recent increases in insolvencies in pure volume terms. Together with concerns about the economy, this could
now be impacting on start up activity, causing would-be entrepreneurs to think twice before embarking on their own venture.

However, pH’s data reveals that - proportionally - significantly fewer firms are failing so far compared to the last recession, because of the increase in the size of the UK business
population in recent years. 

As a result, since Q1 1992 (when the insolvency rate was 0.82%) the real rate of insolvencies actually declined until 2006 and this has only risen slightly to stand at 0.32% per quarter
in Q1 2009, with 6,495 failures in a total business population of 2.05 million registered businesses. And while the financial turmoil seen at the end of 2008, was reflected in a slight
uplift in the insolvency rate in Q4 2008, this subsequently declined again and is currently less than half that of the last recession.

Rolf Hickmann, Managing Director of pH, comments: "Our analysis shows that the business to business population is still fairly resilient on the whole and has not yet suffered
significant insolvency rates from the credit crunch, despite the fallout in the financial sector. Small firms in particular are showing themselves to be resilient, while mid-sized
businesses appear to be bearing the brunt of the downturn. Whether we are now at the start of an upward trend, as seen in the third quarter of 1990, or whether the insolvency rate
will flatten still remains to be seen.
  The net effect of a lower birth rate and higher death rates means that the total business base is growing more slowly, but it is still growing."

Industry sector analysis

Analysing insolvencies by key industry sector highlights significant differences in insolvency rates.  

?  As at the end of Q1 2009, the Construction sector was experiencing the highest insolvency levels at 0.24 %. Around 400 firms in the construction sector, out of a total of nearly 163,000 construction businesses, failed in March 2009.
?  The Manufacturing sector has seen a higher than average insolvency rate throughout 2008 and this has continued into 2009 with a current insolvency rate of 0.23 % of all manufacturing businesses failing.
?  Meanwhile, despite high profile retail insolvencies, there were 425 retail business failures recorded in March, representing just 0.21% of all retail businesses. Although this figure has grown month-on-month, it has been offset by a rise in the creation of new retail businesses. There were 199,000 retailers operating in March compared with 195,000 in January 2009.
?  The finance sector has seen an erratic insolvency rate over the past 15 months. From a low of 0.07% in June 2008, the rate peaked at 0.21% in December 2008. In March 2009, 93 finance insolvencies were recorded, 0.15% of all finance businesses.