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Does A Fall In Insolvencies Signal The Bottom Of The Market?

Surprising news of a slight fall in insolvencies in the second quarter of 2008 has seen many jumping for joy assuming that this is the bottom of the economic slump and the worst is over. But is this really the case? Has the economy hit rock bottom?

Those who believe the worst is over may be in for a major shock over the next 12 months with analysts expecting a sharp rise in insolvencies, IVAs and bankruptcies. These elements of the financial world have been very difficult to forecast in the past due to a number of issues, such as the attitude of banks and the path of the economy.

At this moment in time banks seem to be happy to retain those who have at least a chance of paying off their debts but they will look to improve the quality of their loan books very soon. There is also the small matter that the economy still seems to be in free fall and worse is forecast for the next 12 months. Throw in the problems with the housing market and a lack of available refinancing options and it does not look good.

A 60 percent rise in the number of companies going into administration in the second quarter of 2008 is probably a more realistic indicator of things to come.

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