Number of insolvent companies

There has been a surprise reduction in company failures in East Anglia according to the McTear Williams & Wood Business Index.

The number of company failures in quarter two 2009 in East Anglia is down 26pc on the previous quarter compared to a 13% drop nationally.

However, the comparison of quarter two 2009 with quarter two 2008 shows company insolvencies increased 52pc in East Anglia compared with an increase of 45pc nationally.

These seemingly contradictory numbers suggest that the spike in company insolvencies in East Anglia in quarter one 2009 was an extreme reaction in the business service sector - which predominates in our region - to the economic turmoil caused by the banking crisis in late 2008.

The number of company failures has reverted to about double the level seen prior to the credit crunch.

Norfolk

The picture for Norfolk is a little confusing with a drop in corporate insolvencies quarter on quarter, but the number of insolvencies double the level seen this time last year.  However, overall Norfolk has been the hardest hit county.

Cambridgeshire

Although figures for the county as a whole are up, corporate insolvencies in Cambridge (CB postcodes) are down both on the previous quarter and on this time last year.  This shows the city is suffering less from the recession than the rest of the region.

Suffolk and North Essex

In Suffolk and north Essex the spike in corporate insolvencies in quarter one 2009 was the most pronounced but overall the area has faired better than Norfolk.

Nationally, the rate in decline of GDP from 2.4pc in quarter one 2009 to 0.8pc in quarter two 2009 suggests that the economy may well soon start to recover.

However, most commentators do not expect to see solid growth in GDP until the end of 2010.

So it seems more likely that the recession will rumble on for sometime to come.

Corporate insolvencies tend to lag economic performance by over one year so we expect to see higher levels of failures in 2010 and beyond.  But what might cause this?

Companies that have survived have mostly done so by cutting cost and stretching creditors leaving management exhausted and cashflow under pressure.  Without a sharp recovery in the economy many businesses will simply not have enough momentum to see the recession through.

In particular since November 2008 nationally 177,000 businesses have deferred VAT and PAYE/NIC payments and almost £1.2 billion remains overdue.  Without this life line many companies would have already gone to the wall and there is mounting evidence of a frosty attitude towards repeat requests for further deferrals from tax officials.

Also many of the so called “time to pay agreements” to defer tax will run out this autumn and this coupled with some evidence of a hardening attitude from the banks may cause previously delayed problems to return with a vengeance.

With hind sight we think the marked increase in company insolvencies in quarter one 2009, when viewed against the apparent reduction in failures in quarter 2 2009, was a blip and in the long term the trend remains in an upward direction.  However, as we have said previously this autumn will be the real test.

Our message to struggling business managers is that they do not have to face problems alone.  Talk to your existing advisors or visit us at www.mw-w.com.

 Eastern Daily Press