South: Tracker finds PR, design, IT, office suppliers hit in downturn

According to figures released by the Recovery service line of RSM Tenon, the UK’s seventh largest accountants and business advisers, approximately 5,600 businesses became insolvent in the first quarter of 2012. The actual corporate insolvency figures have not been this high since the fourth quarter of 2009 (5,834) and is a rise of 5% on the previous quarter.

• Manufacturing only represented 5% of total corporate insolvencies in quarter one of 2012, an improvement from the average in previous three first year’s quarters of 6.
• Business services, construction, hospitality & tourism, and retail continue to be the sectors with the highest insolvencies

 The figures which have been collated using RSM Tenon’s early warning system, Tracker and released before the official corporate insolvency announcement by the Government’s Insolvency Service on Friday, has found that despite the manufacturing sector having a reduction in the number of insolvencies in the sector, from 7% of total insolvencies in 2010, 6% in 2011 and now 5% in the first quarter of each year, over 9,000 businesses, out of approximately 64,000 manufacturing businesses are showing signs of critical financial distress. Therefore, the actual sector which will help lead the recovery is still floundering.

Approximately 25% of total insolvencies in the first quarter of the year were in the business services sector. Businesses such as equipment and maintenance suppliers, IT consultancies, design agencies and public relation agencies have all suffered heavily.

Sandy Kinninmonth, director of recovery, said: "The businesses who supply and support the businesses that will help get us out of the current recession are struggling and therefore proves we have hit a period of stagnation as the competitive nature of this market takes hold."

There continues to be significant problems in the construction and property sector which represented 17% and 7% of total insolvencies this quarter respectively. These figures have shown no improvement as these levels have remained the same for the past three years.

Kinninmonth said: "The outlook for both these sectors continues to look difficult for the next 12 months with approximately 36,000 business in the construction sector and a further 10,000 in the property sector showing significant signs of distress. The effects of the public spending cuts are still clearly apparent as contracts are being held or even shelved and as the sector witnesses a period of consolidation and contraction, the time when the purse strings are opened could mean we, as a country are left with no capacity to fulfill orders."

With further reductions in consumer confidence, discretionary spending has continued to reduce and this has clearly had an impact on the retail and hospitality and tourism sectors.

Retail, hospitality and tourism continue to be the sectors that are struggling as they represent over 16% of total corporate insolvencies in the first quarter of 2012. Retail has had an increase of 26% compared to the same quarter last year whilst hospitality and tourism increased by a further 18%.

Ongoing job insecurity and a desire to pay off current personal debt should the worse happen, has led many consumers to reassess outgoings and only purchase essential goods or cheaper alternatives. Pubs and restaurants will undoubtedly have a difficult summer as consumers opt for nights in rather than luxury meals out.

"We expect the number of insolvent businesses to increase in 2012 compared to 2011 but not by much. However, should the Olympics and the Queen's Jubilee have an impact on the retail, hospitality and leisure sectors, especially in the South over the summer, the final picture could be a lot different."

Resources: RSM Tenon website