Prudent measures softened recessionary blow says report
FAST and bold monetary policy response and lessons learned from previous downturns have helped soften the blow to business, a new report has revealed.
According BDO’s latest Industry Watch report the total number of business failures reached 26,165 in 2009 – an increase of 16% compared to the previous year and up 59% on pre-recession levels.
However, the number of failures declined since peaking in the first quarter of last year well before economic output stabilised.
The business advisors cite a number of factors that have worked in tandem to mitigate the worst impact on business during this downturn.
Its report shows that between1,600 and 2,000 corporate business failures were avoided thanks to the ‘time to pay’ scheme that offers struggling businesses the chance to defer tax payments.
Between 3,600 to 4,900 business failures were prevented due to falling mortgage and interest costs which boosted disposable income and corporate profitability.
In addition between 800 and 1,050 business failures were avoided due to the impact that the reduction in VAT had on consumer spending.
Graham Newton, business restructuring partner at BDO in Leeds, said that although the rise in insolvencies was certainly considerable and equated to one in 74 businesses failing in 2009, there had been a downward trend.
“Historically business failures are lagging indicators and continue rising well after the economy has turned. So we were surprised to see that business failures rose far less than expectations through this recession and indeed less sharply than during previous recessions,” he said.
“Usually there is a strong correlation between economic output and business failures but during the 08/09 recession that relationship seems to have been weakened. Surprisingly, businesses have held up better than the economic decline would have suggested.”
Mr Newton added that the Yorkshire picture had been similar to the national trend with lower than expected business failures.
But he warned that the recovery remained fragile and susceptible to future changes in government policy and the macro economic environment.
