Insider Media Limited

The total number of UK business failures in 2010 is predicted to fall by 18 per cent, according to the latest report by Birmingham-based accountant and advisor BDO.

The latest Industry Watch report said that the number of insolvent businesses in the country would fall to 21,600 this year, from a record high of 26,196 in 2009.

However, the number of insolvencies is to remain above pre-recessionary levels until at least 2013.

The report reveals that in 2010, sectors including property and construction, manufacturing and business services are forecast for business failures to fall by over 35 per cent. In the retail and wholesale markets, failures are predicted to fall by just over 20 per cent.

According to the report, business failures will plateau over the next two years, with 20,100 business failures predicted in 2011, a decrease of 10 per cent and 19,300 expected in 2012 – a decrease of 800 failures.

From 2011, a combination of tax increases, pay freezes, public sector job cuts and rising energy costs are likely to reduce disposable consumer income, said BDO. The firm said that this will result in “further business insolvencies in those sectors reliant on consumer spending, such as retail, leisure and personal services”.

The report predicts that business failures in the retail and wholesale sector will rise marginally in 2011 from 3,040 to 3,320, falling to 3,080 in 2012. The report also forecasts that the leisure industry will be fighting hard for the consumer pound, with insolvencies set to fluctuate for the next two years.

Jo Wright, business restructuring partner at BDO in Birmingham, said: “The marked reduction in the number of business failures is disguising underlying risks, given the recession. The 2011 VAT rise and above target inflation will mean that the average UK household’s income will continue to decrease, meaning people have less cash in their pockets to spend on the nice-to-haves. This will hit the retail, personal services and leisure sectors the hardest.”