Grim outlook for smaller businesses
Has the economic recovery begun? And, if so, will it be sustained? These are the big questions that everybody in business is asking.
Earlier this week I attended a “question-time”-style meeting in York organised by The Alternative Board in the rather grand offices of Dickinson Dees. In answer to the above questions, one member of the panel said he thought the recovery would be “W”-shaped while another member thought it would be “U”-shaped. Either way, there was general agreement that recovery was not likely to feel much better than recession. My own view, for what it’s worth, is that the recovery in stock markets and other asset prices is unlikely to last, driven in large part as it has been by the billons – £200 bn in the UK alone – that have been pumped into the financial system. Confidence is closely linked to rising asset values. But prices (and confidence) will surely fall once the tap is turned off. As an eminent former banker told me recently “watch out for when quantitive easing becomes quantitive squeezing.”
One of the reasons why the recovery is going to be difficult for businesses is that banks do not have the capacity to meet the appetite for money by small and medium-sized enterprises. The York meeting was told that banks were now much more risk-averse and no longer wanted to fund property-based transactions. SMEs are advised to explore other sources of finance.
While this is grim news for SMEs, it bodes very ill for the UK as a whole. SMEs account for more than 95% of all UK businesses. They are the engine of growth in the economy and are likely to provide the lion’s share of the new jobs that are needed. The FTSE-100 companies and big mult-national corporations may grab the headlines, but it is smaller firms that will have to deliver the recovery. I wonder if the Government appreciates that.
