Retail bankruptcies rise 10 per cent as high street cull continues

Retail insolvencies are accelerating as wet weather and dampened consumer confidence contributed to a 10 per cent rise in bankruptcies over the past three months, with Clinton Cards and Game among victims of the high street cull reports The Guardian.

PricewaterhouseCoopers said retail had been the only blight on bankruptcy figures that showed a reduction for the private sector between April and June. The retail sector had 426 businesses go to the wall in the second quarter, the accountancy said, up from 386 a year ago. However, the total number of corporate insolvencies fell by 3 per cent year-on-year to just under 4,000.

“There has been a clear reduction in the incidence of insolvencies over the current recession compared to previous ones. Retail is the sector which keeps bucking this trend. In fact, quarter on quarter retail insolvencies have increased for every one of the last four quarters,” said Mark Jervis, a PwC partner.

The overall reduction in insolvencies is expected to fuel hopes that there will be an Olympics-assisted economic recovery in the third quarter of 2012, after the Office for National Statistics delivered a shock to the City last week by announcing that UK GDP declined by 0.7 per cent between April and June.

The PwC figures showed there have been 9,113 insolvencies in construction and manufacturing since 2010, but they also confirmed a recent reduction in the rate of bankruptcies in those sectors. Across the UK, 15.5 per cent fewer construction firms had gone bust than in the previous quarter, and 8.4 per cent fewer manufacturers. But given the cloud of economic uncertainty, experts say the figures may not signal a long term improvement with the same pressures on construction continuing through to 2013.

Nick Parrett, the head of property and construction at accountancy Wilkins Kennedy, said: “The outlook for construction companies is bleak at the moment. In 2012, we’re finally seeing the effects of the government’s austerity programme on the construction industry. Older contracts are coming to an end and aren’t being renewed. Even the recently announced rail infrastructure investment won’t begin for at least 2014.”

He added: “The quarterly GDP data since the beginning of the year has been dire for the construction industry; shrinking output suggests insolvencies will get far worse. The government has announced billions of pounds-worth of infrastructure investment guarantees, but it’s uncertain how many investors will use them or how many projects will benefit that would have gone ahead anyway without the scheme.” Construction output fell 5.2% between the first and the second quarter.

As well hitting retailers, the poor summer weather has not helped the construction sector either. Heavy rain and flooding would have prevented any significant groundwork, for example.

“Poor weather is the main driver of the usual increases in insolvencies over the winter, while summer’s a chance to make up for the lost time. That won’t be the case this year,” said Parrett.

Of the construction insolvencies over the past two years, about 30 per cent were general construction and civil engineering firms, with the remainder made up of architectural, building, water projects, painting, roofing and plastering. Nearly a third of the manufacturers that have gone out of business in the last two years have been industrial companies, with the rest including aerospace and defence, automotive, chemicals, metals and parts of transport and logistics.