Global warming puts businesses in the shade

Global warming could be boosting the number of British businesses going bust.

There has undoubtedly been a significant recovery in the UK economy since the depths of recession four years ago, but the picture is still patchy. Insolvency practitioners say they are busier than last year.

What does this mean for the debate about interest rates raging between Bank of England Governor Eddie George and the Chancellor, Kenneth Clarke?

Mike Wheeler, head of corporate recovery at KPMG, points to two factors behind receivers' recent increase in work.

"There was undoubtedly a hiccup in the economy last year, which hit construction companies and those which rely on the housing market.

"Then over the last two years unusual weather has taken a toll on retail suppliers. Summer lasted too long last year so that clothes retailers couldn't shift their winter stock when it arrived.

"Then this year we had unseasonable bad weather in March and April, so suppliers were stuck with warehouses full of summer frocks."

Mr Wheeler stresses it only takes a small drop in demand to hit retailers badly.

There was added gloom recently when Deloitte & Touche recorded that companies going into receivership rose in July by 45 per cent against the previous month, and up 20 per cent on the previous July.

This is only a monthly figure - the rate of failures is still lower than in 1995 on a quarterly basis. But what would Mr Wheeler advise on interest rates if he were the Governor for a day? "I think the economy ought to be capable of accommodating a modest cut in interest rates. It depends on the sector. Certainly construction and house building would welcome a cut."

But Mr Wheeler's view is far from doom and gloom, as the economy approaches the trough of the business cycle. He does not expect another big rise in collapses until 2001.

Nigel Hamilton, one of the senior corporate recovery experts at Ernst & Young, warns that simply looking at the numbers of failures misses the point.

"A lot of these receiverships are getting down to corner shop size, there are much fewer large cases than previous years. I was having lunch with a senior partner at another firm yesterday and he said that we could all afford the time for lunch these days."

For Mr Hamilton, a man who has handled big insolvencies such as Barlow Clowes and Canary Wharf, the biggest threat to the patchy recovery is the lack of confidence in the manufacturing sector.

"Confidence still isn't there. But should we cut rates? I wouldn't put my money either way - I'd hedge my bets."