Manufacturing business failures set to increase to 52 per cent this year, but will stabilise in 2010, says latest report

Business failures in the manufacturing sector are predicted to increase to 2,300 (one in 44 manufacturing businesses) according to the latest Manufacturing Industry Watch report by accountants and business advisors, BDO LLP.

Driven by slowing domestic and export demand combined with the limited availability of credit, 2.3 per cent of all manufacturing business will be forced to leave the market by the end of 2009, the report says. This is up 52 per cent from the 1,500 failures (one in 68) seen in the sector in 2008.

Despite the pessimistic outlook, manufacturing business failures are forecast to taper off in 2010 (although expected to still mirror this year’s 2,300 figure). This is due to expectations of a weaker Stirling boosting exports in the medium term and leading to favourable exchange rates. This is set to help manufacturing firms more than those in other sectors, benefit increasingly from a global recovery.

Kim Stubbs, business restructuring partner and manufacturing sector specialist at BDO LLP said: “The manufacturing industry has undergone a continuous decline over much of the last decade resulting in falling employment in the sector and elevated business failure rates. Sadly, the current economic climate will further accelerate this downward trend and lead to further consolidations in the British manufacturing sector.”

“While manufacturers are likely to benefit disproportionately from favourable exchange rates and a global recovery, they need to focus on the crucial steps to get through the economic crisis, including cost cutting wherever possible, managing inventory and retaining cash within the business.”

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For more information, please contact Stephanie Aneto at BDO on 020 7893 3073 / 07815 172 048 or email stephanie.aneto@bdo.co.uk

Notes to editors:

Methodology notes
1) Industry Watch is the first study to make projections of total business failures and the business failure rate in Great Britain by sector, based on data for compulsory liquidations, creditors voluntary liquidations, administrative receiverships, administrative orders and company voluntary arrangements (CVA) provided by the Department for Business, Enterprise & Regulatory Reform.
2) The BDO Industry Watch model uses 33 key variables which have shown to be related to business failures by sector. The total number of business failures for Great Britain is based on the aggregated sector forecasts.
3) Annual business failure rates are based on the number of VAT-registered enterprises and cebr have produced forecasts for the number of VAT-based enterprises expected in 2008 to 2012.

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