Rise in business failures blamed on credit crunch

15/01/2008

The number of businesses going bust increased at the end of 2007 as the credit crunch began to have an impact on the economy, it has been claimed.

Research by business information provider Equifax suggests that the last quarter of 2007 was particularly tough for businesses in the construction and services sectors, which suffered an increase of 16.6% and 13.8% respectively in the number of failed businesses.

The Equifax Business Failures Report revealed an overall yearly increase of 5.7% in the number of business failures compared to 2006.

“Business failures were up in most sectors in quarter 4 as the credit crunch began to take its toll on the UK economy”, said Neil Munroe, external affairs director, Equifax.

“And, as we enter the first quarter of 2008, businesses are under increasing pressure as lenders continue to tighten their purse strings.”

However, the figures showed significant sector and regional differences, and highlighted many areas where the number of business failures had actually fallen.

Manufacturers fared particularly well, with failures down 9% for the year as a whole, as did the transport and communications sector.

The retail sector also saw a drop in the overall number of businesses going bust during the year, with numbers down 3.1% compared to 2006.

However, Equifax warned businesses to take extra precaution to protect themselves until the turmoil in the credit markets subsides.

“With only 3 regions seeing a drop in businesses going under in the last quarter of the year, it is clear that organisations must do more than ever to protect themselves from the risk of failure,” added Munroe.