The UK business failure rate has fallen to its lowest level since September 2008, according to figures from Experian, an information services company.
The business failure rate had been on an upward trend since 2007. However, Experian’s new monthly Insolvency and Distress Index, shows that 0.09 per cent of UK businesses failed during August this year, a slight increase on the 0.08 per cent recorded in August 2008, but significantly lower than the 0.11 per cent recorded in July and the lowest rate so far this year.
The total number of business insolvencies during August 2009 increased by 11.3 per cent, compared to August 2008. However, in comparison to July, the total number of insolvencies fell by 23 per cent, and with a total of 1,796 insolvencies in August this too is the lowest number of monthly failures so far in 2009.
Experian’s data also reveals a slight improvement in the financial solidity of the UK business population, as measured by its average distress score. The distress score – which predicts the likelihood of a business failing in the near future, with 100 being the least likely to default and one being the most likely – had been on a slow downward trend since March 2008 when it stood at 82.24.
Yet Experian’s Insolvency and Distress Index reveals that the financial distress levels of businesses decreased recently, as the score improved from 80.69 in July to 80.79 in August 2009 This is the best average score the UK business world has seen in the last 12 months.
Rolf Hickman, managing director of pH, an Experian company, says: “This latest data is encouraging. However, it is also important to remember that although the total number of insolvencies is close to the total number in the last recession, the insolvency rate is no where near as high. The underlying business population has also been growing at an increasing pace, so this needs to be taken into account in order to gain a realistic picture of insolvencies in the UK and the extent of any impact on the UK economy rather than simply looking at raw insolvency statistics.
“Although it is too early to tell whether this is an indication of a more positive outlook, one thing is for sure: businesses are distinctly aware of the current environment and the need to be cautious in any business dealings. We have seen a significant increase in businesses monitoring the health of suppliers, customers and partners, as well as themselves, in order to ensure they do not suffer from the impact of another business becoming insolvent.”
The North East region saw the highest rate of business failures during August 2009. It was also the area to see the highest increase in the number of insolvencies during August this year compared to August 2008 (up 92.7 per cent).
Very small businesses (five employees or less) proved to be the most resilient during August with low insolvency rates (0.05 per cent for businesses with up to two employees and 0.12 per cent for businesses with between two and five employees). Those small businesses that survived also saw a higher than average improvement in their financial stability (81.32 for businesses with up to two employees and 82.58 for businesses with between two and five employees).
Postal and telecommunications businesses are seeing the highest levels of financial distress, compared to businesses in other sectors. This sector had the worst distress score during August (76.29) and the second highest insolvency rate (0.26 per cent).
