A downturn in the UK economy – with profits hit, companies gripped by bad debts and business failures increasing – has been reported by two major information companies.

The economic slowdown will have a knock-on effect on insurance, with closures affecting brokers' clients, with the collapse of Independent adding to the general air of economic gloom.

According to leading credit insurer Euler Trade Indemnity, bad debts and business failures for the second quarter of 2001 are at their highest for seven years.

Moreover, with the decline in company profitability almost identical to that in the first quarter survey, the insurer said results from the second quarter indicated this was more than a “one-off downturn”.

Chief economist at Euler Trade Indemnity, William Simpson, said the slowdown was having a very damaging effect, with the second quarter showing a 15% year-on-year rise in bad debts and business failures.

He added that the data had been provided by its policyholders. “These are firms that have gone out of business or ceased to pay their creditors.

“Credit risk is high and rising in line with the pressure on profits noted here.”

According to information solutions company Experian, the 12 months to December 2000 showed a 15% drop in profitability.

Author of the report, Peter Brooker, said: “By the end of last year, the British economy was showing worrying signs of slipping into recession.”

He added that the slowdown had spread to virtually every part of the country, with profitability falling in all regions between the third and fourth quarters of 2000, except in the North East and Scotland.