Businesses may not survive - warning

6:42pm Tuesday 8th July 2008

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HUNDREDS of businesses in the region may not survive until the end of the year in the current economic climate and scores of people could face losing their jobs, financial professionals warned tonight.

As the credit crunch continued to tighten its grip on the economy yesterday, amidst what has been described as "undoubtedly the most challenging period" in recent history, insolvency experts from the North-East warned that businesses may suffer further in the coming months, with numerous expected to collapse under the pressure.

A "significant" number of jobs could also be lost in the region as a result, it was predicted.

Andy Wood, regional chairman for the Association of Business Recovery Professionals in Yorkshire, said hundreds of companies in the North-East and North Yorkshire - and thousands nationally - could fall victim to the credit crisis.

Figures show there were 3,210 liquidations from January to March nationally this year, which one expert has predicted could rise by as much as eight per cent for the second quarter of 2008.

However, James Ramsbotham, chief executive of the North-East Chamber of Commerce (NECC), predicted there would be light at the end of the tunnel in the medium to long-term for housebuilders, one of the main sectors to suffer.

"Once things start to turn, and demand again outstrips supply, housebuilders will be in the driving seat again," he said.

As the current bleak economic run continued, York-based Persimmon became the latest housebuilder to announce redundancies, saying it had axed 1,100 jobs since the beginning of the year in a frantic attempt to save money.

It also came as the FTSE dived more than two points as the gloomy outlook caused investors to panic, and statistics from Nationwide showed that consumer confidence had slumped to another all-time record low for the sixth month running.

Last night, finance professionals told The Northern Echo that the situation could get worse as businesses continue to feel the effects of the current credit crisis into the foreseeable future.

Mr Wood said insolvency experts are busier now than at any time in the last decade.

"We have a steady stream of businesses wanting advice about what they can do - pubs and restaurants are being badly hit, as are developers. Many of these bought a plot of land to develop for their pension fund," he said.

"Unfortunately, a large number will not survive the end of the year."

Eamonn Wall, director of Robson Scott Associates in Darlington, said the situation could get worse for business, and said insolvency numbers could have risen by as much as eight per cent from April to June.

"There is presently a noted increase in the level of both personal and corporate business failures," he said.

"However, as the effects of the credit crunch are only starting to be felt now, we are expecting a further increase towards the end of the year, and lasting for the foreseeable future."

Mr Wall advised firms to contact an insolvency practitioner as soon as it started to face difficulties, to minimise the potentially crippling effects.

Businesses across the country are reporting significant trouble due to the economic climate, with Persimmon - which also builds Charles Church homes - being the latest company in the badly-hit construction sector to report losses. It described the current market conditions as "undoubtedly the most challenging period" in recent history.

The Home Builders' Federation has also predicted the UK buildingindustry is facing the worst downturn for over 30 years, which could cost thousands of jobs nationally.

It follows the announcement from fellow housebuilders Taylor Wimpey and Newcastle-based Barratt Developments last week that they were to shed a combined 2,000 jobs nationally. Barratt also announced 50 redundancies in the North-East.

Companies from all sectors are suffering from the downturn. Global-leading electric vehicle maker Tanfield - which has seen three years of record-breaking growth - has now been forced to postpone the opening of its new factory and abandon its ambitious expansion into the US.

It has also admitted it may be forced to make redundancies at its flagship base in Washington, Tyne and Wear, to cut costs.

Mr Ramsbotham said that although housebuilders are suffering from rising mortgages forcing buyers out of the market and falling house prices, but predicted the market would return to normal, particularly in relation to new-build properties.

"At this point the worry will be under supply, rather than demand, as production will have slowed to such an extent that it will take time to crank back up again," he said.

"Buying a house is a long-term investment in the future, not a short term fix. Short-term price variations can be expected with all investments.

"Threats always bring opportunities and it looks to me that the time is nearing when opportunities to purchase a new home will be favourable for those who can take them."