U.K. Personal Insolvencies Rise as Crisis Spreads

By Brian Swint and Jennifer Ryan

Nov. 7 (Bloomberg) -- U.K. personal insolvencies increased in the third quarter as unemployment rose, a sign that the worst economic slump since the early 1990s is hitting consumers.

The number of individuals in England and Wales no longer able to meet debt obligations rose 8.8 percent from the second quarter to 27,087, the government Insolvency Service said today on its Web site. Company liquidations increased 10.5 percent.

The Bank of England yesterday reduced the benchmark interest rate to the lowest since 1955 to shore up an economy on the brink of recession as lenders restrict credit. Gross domestic product fell 0.5 percent in the third quarter and unemployment rose to the highest in almost two years in September.

``Insolvencies will continue to rise into next year as the credit crunch moves through the economy,'' Louise Brittain, partner at accountancy firm Baker Tilly in London, said in an interview. ``A lot of creditors are getting more aggressive about collecting. The rate cut won't have a huge impact.''

From a year earlier, personal insolvencies climbed 4.6 percent and company liquidations increased 26.3 percent.

House prices fell 14.9 percent in October from a year earlier, HBOS Plc said yesterday. The Bank of England said Oct. 28 that a 15 percent drop in house prices would push 10 percent of mortgage holders into negative equity, where the value of a home is worth less than the loan used to buy it.

Royal Worcester

Companies are also having more trouble pay back loans. Royal Worcester & Spode Ltd., the U.K. porcelain maker founded in 1751, collapsed into administration yesterday after failing to sell property to reduce debt.

The U.K. central bank lowered the benchmark interest rate by 1.5 percentage points yesterday, the biggest single move since 1992. Britain's economy will shrink 1.3 percent next year, making it the worst performer among Group of Seven countries, the International Monetary Fund said yesterday.

``There can be little doubt that the marked rise in the number of individual insolvencies in the third quarter is only the beginning of the storm,'' said Howard Archer, chief European economist IHS Global Insight in London. ``While the sharp cut in interest rates will obviously be of some help, it is likely to be insufficient to save many people.''

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net. Jennifer Ryan in London at jryan13@bloomberg.net