Fall in insolvency rate belies worse figures to come

Posted on 24 Jul 2009 by The Manufacturer

A drop in the number of manufacturing insolvencies in England and Wales is masking a potential climb in the second half of 2009, says accountancy firm PriceWaterhouseCoopers.

The first six months of 2009 saw 653 UK manufacturing firms enter into insolvency, a figure representing the smallest decrease (10.4%) of those sectors profiled, including construction, hospitality and leisure, retail, and real estate. Given manufacturing’s high profile insolvencies – vanmaker LDV, for example – in the last three months, such a decrease, while understandable, is still worrying for manufacturers and provides little evidence for signs of ‘green shoots’.

Of the figures, Philip Hines, manufacturing expert at PricewaterhouseCoopers, said: “The decline in manufacturing in recent months – with falling orders and diminished sales – shows some signs of improvement, but we expect further insolvencies and a net rise in unemployment throughout 2009.”

“With recent government intervention in the form of stimulus packages and incentives for consumers, the benefits for industrial companies are minimal, and certainly not immediate. On the positive side, however, it is encouraging that many UK manufacturing firms have been managing their costs through salary freezes and reduced work weeks rather than redundancies, given that skilled manufacturing workers are a scarce and strategic resource in the UK.”

The accountancy firm’s analysis mirrors that contained in a Red Flag Alert study earlier this month by restructuring consultants Begbies Traynor, in which they found that the number of UK companies suffering ‘significant financial problems’ rose 43% to 190, 559 in the second quarter of the year. Worryingly, the majority of companies experiencing such problems collapse into formal insolvency proceedings within 12 months, according to the firm.

“The second-quarter Red Flag Alert shows the recession is likely to be prolonged, possibly more prolonged than the last recession, and there is no evidence yet of a real recovery emerging,” said Ric Traynor, executive chairman, Begbies Traynor.

Ed Machin