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Rise in administration figures indicates economic recovery remains just out of reach for UK businesses

By CreditMan Friday, August 2, 2013

The rise in the number of corporate insolvencies, announced today by the UK Insolvency Service for Q2 2013, reveals the true health of the broader economy according to Philip Duffy, Partner at Duff & Phelps, a leading independent financial advisory and investment banking firm.

Overall corporate administrations for Q2 2013 rose to 622, compared to 557 for Q1 2013. Although corporate administrations for Q2 2013 have dropped for the same quarter year on year, from 625 to 622, the decrease is minimal.

UK businesses are enduring a challenging 2013, with tough austerity measures, continued high street woes and challenging economic news coming out of Britain’s key trading partners, such as the Eurozone. Today’s figures are a reflection of the impact these challenges have had on those businesses struggling in the current climate.

Philip Duffy stated: “The rise in corporate administration figures in the UK for the second quarter of 2013 is an unhappy reflection on the true state of affairs faced by many businesses in light of what is proving to be a tough year. Despite the news last week that UK GDP had risen by 0.6% in the same quarter, there is an argument to say the worst is behind us and we are beginning to see the green shoots of recovery. Even the latest figures for the retail sector, which is typically a barometer of public confidence, have been encouraging if the latest sale volume figures released by the Office for National Statistics are anything to go by as the quantity of goods bought in June 2013 had increased by 2.2% compared to June 2012.”

“Today’s figures show there is still a need to proceed with caution, as they discount the signs we are seeing that the economy is growing again,” added Philip.

“It could be argued that today’s numbers are indicative of the smaller and weaker businesses that struggled into 2013 have now gone into administration or even liquidation, making way for the more robust businesses. However, from our own experience, what we are seeing is that the size of the companies now failing tends to be larger,” continued Philip.

“We are at a very important point in the economic cycle. Experience has told us that it is during the early stages of economic upturn that we tend to see the highest rates of corporate failure amongst smaller businesses and especially start-ups. Businesses take risks; they over-trade and stretch themselves financially off the back of a renewed sense of confidence.”

“So if we are to draw anything out of the figures released today it is that we are still some way off from a full-blown recovery.” concluded Philip.