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Over 6,000 UK construction firms will fail by mid 2009

The number of UK business failures is predicted to increase by almost 50 per cent in 2009, according to accountants and business advisors, BDO Stoy Hayward, with 6,400 UK construction firms going under

BDO Stoy Hayward Industry Watch report forecasts that as economic conditions worsen, business failures will rise to 21,900 by the end of this year and to 32,300 in 2009, to a peak of 32,400 in 2010.

The sector that will suffer the most by mid 2009 is construction where a predicted 6,400 businesses will fail. This is followed by business services (5,700), real estate (3,200) and manufacturing where 3,000 companies are predicted to fail.

Measures announced in the Pre-Budget report will go a little way to reduce these numbers, said the report, with only 1,100 businesses saved through the Government's fiscal stimulus.

According to the report, consumption growth is set to fall to 1.0 per cent by the end of this year as the economy starts to retract. Rising unemployment and weakening earnings growth will be compounded by increases in savings. Falling inflation will only partially offset these effects as consumption in 2009 is predicted to decline by 1.5 per cent and GDP is expected to contract by 1.0 per cent.

However, Shay Bannon, head of business Restructuring at BDO Stoy Hayward, said is in a better position to weather the storm than previuos recessions. “Despite the pessimistic outlook in the short term, the UK economy is in a better position in this stage than in recessions seen before. Low interest rates and inflation gives the UK strong economic foundations for recovery,” he said.

“The Pre-budget measures should act to mitigate some of the effects of the financial crisis intensification and prevent growth falling below the -1.25 per cent limit of the Treasury forecast but this all seems too little too late for those UK businesses which will not survive the downturn.

“All sectors across the economy will be hit over the next eighteen months as all businesses feel the impact of the challenging environment. It is important that businesses now, more than ever, focus on managing and sustaining their cash flow and find ways of effectively meeting the needs of consumers.”