In total, 3,531 companies became insolvent in the second quarter of 2011 compared to 4,216 in the previous quarter – a 16% decrease. However, the level of insolvencies increased by 2% compared to the second quarter of 2010.
Mike Jervis, partner in the business recovery services practice at PwC, commented:
"The declining levels of corporate failure this year should not lead to complacency as our data shows that the overall picture is worse than this time last year.
"The UK economy is by no means out of the woods yet as we continue to see retailers running into financial difficulties and shutting up shop/closing their doors.
"The impact of the Government’s public sector spending cuts, which have yet to be felt, are likely to have a further adverse effect on consumer spending and especially on those companies supplying the public sector.
“The trend of falling corporate insolvency levels during the recent recession has been rather atypical but this is partly due to a combination of factors which have provided breathing space for many struggling businesses.
"Persistently low interest rates, increased time to pay agreements by HMRC, and a supportive attitude from secured lenders anxious to avoid the potential crystallisation of losses on their balance sheet, have all helped.
“The main short-term challenge is low consumer confidence, but the greater long-term challenge is the wall of debt that needs refinancing over the next few years.”
Sector analysis: Bad news for Retail and Hospitality and Leisure
The quarterly rent due date on the 24th June will not have helped the fortunes of companies with multiple premises - Retail and Hospitality and Leisure companies being prime examples of this.
Although overall numbers were down on the previous quarter, with 375 Retail companies and 255 Hospitality and Leisure companies entering insolvency, in comparison to last year, they actually saw 9% and 10% increases respectively.
It is also clear that it is the larger retailers who are suffering. When looking at retailers with assets of over £1mn, there were 41 entering insolvency in the last quarter, more than three times the amount in the first quarter of 2011 and nearly seven times more than in the same quarter last year.
Construction also had a difficult quarter in comparison to this time last year with 584 companies entering insolvency in the quarter.
PwC's economic team announced this week that house prices in the UK are unlikely to recover until 2020, this will obviously have a knock-on effect on some housebuilders, despite the demand for new houses in the UK.
However, the pressure is not just being felt amongst housebuilders and, unlike periods of previous housing property difficulties, DIY spending appears to have also fallen. According to recent research by Lloyds TSB, DIY total spending has fallen to its lowest level since 1998.
This links to the increase in insolvencies in home improvement where both Moben Kitchens and Focus DIY are amongst recent corporate casualties.
Mike Jervis added:
"The squeeze on retail expends to the DIY Sector where UK households are reducing the amount they spend on discretionary items.
"Making do" seems the order of the day in the new normal economic climate and we can expect to see this continue to affect the home improvement industry as the public spending cuts and squeeze on the public purse continue to hit home.”
Perhaps unexpectedly, the Manufacturing sector is performing very well with 27% less insolvencies than the first quarter of 2010 and 378 companies entering insolvency.
This is also a healthier position than last year with a 10% decrease on the same three months in 2010.
Regional analysis
The stats paint an uplifting picture across the regions of England and Wales with every single region of the UK showing a decrease in numbers of insolvencies on the previous quarter.
However, when we compare the landscape to the same quarter last year, the results are much more mixed.
The North’s numbers were up on last year with both the North East and North West showing increases in numbers of 21% and 11% respectively. However, the West showed a 38% increase on the same period last year with 110 companies entering into insolvency.
