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The number of firms in financial distress has fallen sharply in recent months — but this could be the lull before the storm, Begbies Traynor said today.
The insolvency firm said its “red flag” early warning system found 133,500 companies were in trouble in the third quarter of the year.
This represented a 28% fall on the second quarter of this year when around 186,000 firms hit difficulty and 13% down on the third quarter of 2008.
Begbies put the fall down to the Government's emergency Business Payment Support Service which has allowed more than 215,000 companies to put off tax payments worth £3.79 billion.
But it forecast “a deluge of business failures” next year as the economic recovery proves to be short-lived. Begbies chairman Ric Traynor said: “The well-intentioned Government efforts to prop up struggling companies may provide a necessary lifeline in the short-term, but will ultimately prove futile in many cases.
“Both banks and trade creditors are also holding off wherever possible in the hope that business fortunes may improve, but Begbies Traynor supports the view of many leading economists that the UK is currently at the midpoint of a W-shaped recession.
“Experience of the last four recessions tells us that unemployment levels and corporate and personal insolvencies are lagging indicators, and thus seem certain to rise in 2010.”
