THE number of manufacturers going into administration has fallen by a fifth, according to the latest figures.

Research carried out by business advisory firm Deloitte found a 20 per cent drop in the number of administrations in the manufacturing sector in the first half of the year to 297, compared with 371 in the same period last year.

Ian Brown, partner and head of reorganisation services at Deloitte Newcastle, said the figures should be treated with caution.

He said: "Over the past couple of years, we have seen so much liquidity chasing a scarcity of quality deals. This is now changing and, with interest rates rising, we will see an acceleration in the rate of companies going into administration as more marginal investments begin to buckle.

"We should not be misled by the current figures, as at Deloitte, we are seeing more work dealing with troubled companies, which were acquired from earlier failed enterprises and which are now beginning to fail again with increasing momentum.

"Also, the banks are getting more cautious about lending money. With interest rate rises beginning to bite, we have seen a marked increase in the rate of business reviews we are being asked to undertake."

Paul Williamson, senior partner and North-East manufacturing partner at Deloitte Newcastle, said there were a number of indicators that suggest difficult times lie ahead for manufacturers.

He said: "The cost of raw materials remains an issue for manufacturers and, combined with the rising interest rates and continuing high energy costs, we have an environment which is likely to result in an increase in instances of financial distress."