Nearly 2,500 hospitality and leisure companies will be forced to close over the next two years as the public tightens its purse strings.

The latest Industry Watch report from accountant BDO Stoy Hayward reveals that the leisure industry will suffer the largest increase in business failures since 1996 in 2005 and 2006, while the number of company closures in the rest of UK industry will continue to reduce.

According to the report, some 1,090 firms will fail this year. Although this is a reduction from last year's 1,120 collapses, the report warns that 2005 and 2006 will mean further struggles for the sector.

Despite a recovery in UK tourism and a strong corporate spend on entertainment, the consumer slowdown will start in 2005, the report says, with business failure rates within the sector expected to rise by 0.8% by 2006.

This will mean an increase in the number of failing hospitality businesses, with 1,169 closing in 2005 and 1,249 predicted to collapse in 2006.

Shay Bannon, business recovery services partner at BDO Stoy Hayward, said: "New fuel taxes will increase pressure on consumers and businesses alike, and with the possibility of further interest rate rises we could be in for a bumpy ride over the next two years."