Insolvencies hit record high in the first quarter of 2005 |
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Mon, 09 May 2005 15:10
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Bankruptcies in the first quarter swung at a record high with the Department of Trade and Industry declaring about 10,091 insolvencies in the first three months of this year. It is for the first time that the bankruptcy total in a quarter has crossed the 10,000 level.
Furthermore, the amount of bankruptcies were 24.5 % higher than last year, and about 2.8 % above the levels recorded in the previous quarter. What’s more, another 3,139 people, i.e. 40% more than last year, were found making Individual Voluntary Arrangement (IVAs). IVAs offer an arrangement whereby debtors and creditors can arrive at a settlement with their creditors.
| According to experts, these statistics only indicated the affect that the scaling interest rates, soaring debt levels and the huge hike in oil prices were having in the domestic circuit. An economist with Global Insight, Howard Archer explained that consumers had borrowed substantially and were precariously placed at a brink where any and every interest rise would affect them tremendously. He added, "This is a situation that the Bank of England will be very conscious of in its future monetary policy decisions, and is another reason for it to hold off from raising rates again in the near future."
Meanwhile, head of personal insolvency at accountancy firm, KPMG, Steve Treharne, said that this record high bankruptcy levels had closely followed news of a 35 per cent increase in mortgages this year against last year. He called the rising bankruptcies a ‘big black cloud of debt hanging over the UK’ and added, "If the current trend continues, we could see annual rates of 60,000 bankruptcies within the next three years."
What is worse that it were not only the unemployed who were facing insolvencies but also those people who had proper running businesses or jobs, had gone bust.
The DTI figures revealed that just one-third of the insolvent, had no employment. Thereby, Vicky Redwood, economist with Capital Economics said, "Even those with a regular income are running into financial difficulties. The slowdown in household spending growth is here to stay."
Still, experts prefer to be optimistic and remain hopeful about the market. They say that no crash in the property market can be seen and there are possibilities of the insolvency levels going downhill. As the senior European economist at Citigroup, Michael Saunders, believes, "Overall household balance sheets and cash flow are not under great strain."
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