The number of businesses going bust is set to rise next year to the highest level since the dot-com crash, according to a leading accountancy firm.

More than 17,800 businesses will go bust this year and 19,100 will become insolvent next year, BDO Stoy Hayward forecasts. It blames the effects of the credit crunch.

The figure compares with the 19,928 businesses that failed in 2002, when the dot-com bubble burst.

BDO said that it had raised its forecasts sharply from six months ago amid spiralling prices, plunging consumer confidence and falling house prices.

Shay Bannon, business restructuring partner at BDO Stoy Hayward, said: “The credit crunch is going to have a bigger lag than expected on UK business. Companies need to batten down the hatches for the next 18 months.”

The only exception to the trend of increasing business failures, BDO said, was the technology, media and telecoms sector, where the number of companies going bust is set to stay flat next year.

The challenging conditions faced by businesses were highlighted as British businesses' optimism about their prospects for the coming year fell to a record low last month. The amount of companies expecting their own trading conditions to improve over the next 12 months fell from 42 per cent in April to 24 per cent in May, according to a survey by Lloyds TSB. This is the lowest level since the survey began in 2002.

However, there are signs that businesses are beginning to feel more positive about the outlook for the economy. About 31 per cent of businesses felt more pessimistic than optimistic about the economy in May, compared with 51 per cent that reported feeling more pessimistic in April.

There was some good news for businesses on the high street as retail sales in London bounced back in May. Retail sales in London were 8.2 per cent higher last month than in May last year, according to figures published today by the British Retail Consortium.

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