A BUSINESS recovery firm announced a sharp drop in corporate failures today but warned companies were not out of the woods as public sector cuts start to bite.
PwC said 15,894 firms became insolvent in 2010, a fall of 18.5 per cent on the 19,512 figure recorded the previous year after economic conditions improved and more businesses were able to pursue options other than insolvency.
In the most recent quarter, 3,605 companies became insolvent - a 6 per cent decline on the June to September quarter and 19 per cent lower than a year earlier.
However, PwC business recovery services partner Mike Jervis said public sector cuts could still cast a shadow over the figures for 2011.
He added: "UK businesses are certainly not out of the woods yet, as we expect looming public sector cuts to hit the bottom line of many public sector suppliers."
Mr Jervis said the demise of Rok in November highlighted that companies within the construction and service industries were still vulnerable.
There were 565 corporate failures in the construction sector in the last quarter, making it the UK's worst affected sector ahead of manufacturing with 410 and 399 in retail. However, all sectors showed a marked improvement when compared with the same quarter of 2009.
Mr Jervis added: "It is telling that overall construction insolvencies during 2010 were still 15 per cent above those experienced in 2008. A modest increase in interest rates would also put additional pressure on many struggling companies."
PwC's analysis shows that London continues to have the highest number of insolvencies with 875 but this is a 24 per cent drop on the same quarter of 2009.
The East, South and West have seen rises in the number of insolvencies, whilst the biggest improvement has been recorded in the East Midlands, where the number of insolvencies has dropped by about 40 per cent since the last quarter.