Prices ‘a key factor in insolvency rise’

May 2 2008 by Peter McCusker, The Journal

RISING fuel and commodity prices have been cited as a key reason for a 41% rise in the number of regional firms going bust in the last three months.

In total, 131 businesses in the North East and Cumbria went into insolvency in January, February and March compared with 93 businesses in the previous quarter.

The figures have been compiled by PricewaterhouseCoopers from notices published in the London Gazette and Sean Hamilton, its director of Business Recovery Services, highlights inflationary pressures as one of the main drivers. The findings also came on the day the new Chartered Institute of Purchasing and Supply monthly survey showed factory gate prices had risen at their fastest rate for nine years. However, Mr Hamilton, who has worked in the field of business recovery for 11 years, says the economic picture is “nothing like” that witnessed in the early 1990s.

He said: “I think we are certainly in a downturn but this is not a recession. The credit crunch is playing its part but from my experience many businesses are finding it hard to cope with rising fuel and commodity prices.

“Businesses who rely on consumer spending are struggling as people tighten their belts.”

He cited the example of Newcastle-based Pennine Windows which went bust in January but has since been resurrected by former rival Cramlington-based Paramount Windows. The PwC figures also show the number of corporate insolvencies in the North East and Cumbria are 39.4% up on the same period last year.

Nationally, the number of corporate insolvencies in quarter one of 2008 rose by 21% compared to the last quarter of 2007 and 17% compared to the same period of last year. Across England and Wales January, February and March saw the highest number of insolvencies since the fall-out from the dot-com crash in 2003.

Ross Smith, head of policy at the North East Chamber of Trade, said: “We have seen very positive growth over recent years in the number of companies in existence in the North East, so in some respects this may be a natural consequence of this greater level of entrepreneurial activity. But there is no doubt that it is getting tougher. Whether it be difficulties trying to access finance or concerns over inflation, with the rising cost of fuel being one major concern. This is making trading conditions tougher.”

Sarah Green, regional director of the CBI, said: “Businesses who are reliant on consumer spending are finding it more difficult but overall regional businesses are reporting continued steady trading.

“Many are reading about recession but their figures currently don’t back this up – there is growth, it’s just slower growth than in recent years.”

One NorthEast’s chief economist Paul Mooney said the relatively low number of businesses in the region may have distorted the percentage failure rate. He said: “Business churn is a natural feature of any economy but clearly a rise in insolvencies is a concern, especially in the context of challenging times for the global economy.”