UK clothing manufacturers are faced with a stark choice for the rest of 2008 according to new research: hold on to sales at reduced margins, or opt to reduce in size and scale.

The analysis from Plimsoll points out that economic conditions are accelerating the rate of change in the market.

And it says 352 of 1000 firms analysed are losing money, a direct consequence of rising costs and price reductions set against a slowing market.

Of most significance is the number of clothing manufacturers using an overdraft as a permanent means of finance - a dangerous position for any company to find itself in.

And with banks now taking a critical look at all unsecured finance and reassessing their exposure to small businesses - this could leave firms in a position where their overdraft would need paying back on demand. Many simply cannot afford to do this.

Characteristics of failing or failed businesses previously analysed by Plimsoll include sliding financial performance as costs run out of control, followed by rising debts and interest payments.

The final blow often comes when an outside factor hits the company, such as the loss of a large contract, a bad debt, or a slowdown in business - and it simply does not have the financial resources to adjust.

However there is some good news, since companies can return to profit through tighter cost control and a reduction in overheads.

Looking towards the end of the year, the analysis predicts increased acquisition activity as predators snap up essentially sound businesses at bargain prices or larger players grab an opportunity to buy smaller niche players who add value to their core business.