The number of UK companies becoming insolvent will rise this year to its highest level since 2003, a study suggests.

According to accountancy firm BDO Stoy Hayward, business failures will jump to 17,697 in 2008 - a 9 per cent rise on the previous 12 months.

BDO Stoy Hayward says the increase will be caused by the global 'credit crunch' and higher interest rates.

And business failures are predicted to escalate even further in 2009, to 18,142, taking insolvency rates to levels not seen since the dot.com bubble burst in 2002.

Shay Bannon, BDO Stoy Hayward: "It's a pretty gloomy picture but the good news is that business failure rates are still a way off from reaching 2002 levels which saw almost 20,000 companies go bust."

Business insolvencies in 2003 stood at 17,546.

The manufacturing, retail, property and construction and services sectors will be the worst hit in 2008, BDO Stoy Hayward warned.

Shay Bannon, business restructuring partner at BDO Stoy Hayward LLP, said: "British business faces a tough time next year with the number of business failures set to reach levels not seen for five years. Businesses in most sectors will need to prepare for a more challenging economic environment as the global credit crisis kicks in.

"It's a pretty gloomy picture but the good news is that business failure rates are still a way off from reaching 2002 levels which saw almost 20,000 companies go bust.

"There are also glimmers of hope for industries such as retail predicted to be bolstered if the Bank of England slashes interest rates and the property sector which will be supported by the build up to the Olympics.

"To avoid becoming another business failure statistic in 2008, it's important that companies feeling the pinch have contingency plans in place and take action early."