According to official data the UK has slid, albeit slightly, back in to a double-dip recession for the first time since the ‘70’s. Whilst I’m sure the opposition politicians will make political capital out of this and the economists will argue how accurate the statistics are, the real danger is that potential consumers and ‘blue chip’ companies will simply hang on to cash. With a very fragile revival and little sign of the banks coming to the rescue for small to medium sized businesses any time soon, this gloomy news will only add to depressing outlook for small companies when thinking about the double-dip recession.
The government can argue that there is conflicting evidence that recent surveys have showed manufacturing, services and even construction all enjoyed decent growth in the first quarter of 2012. To my mind it does not really matter what the figures are saying, the bottom line is the historic figures by their very nature are telling us where we have been and not where we are now. It’s what happens next that will really matter for businesses across the UK. The banks who market themselves as being friendly to businesses are as usual nowhere to be seen and the vast majority of companies we have to assist could be helped with something as simple as an overdraft. The banks are simply not lending, not to business and not for residential mortgages and they appear to be looking for any reason not to lend. It is no wonder why we are entering recession once more.
From a business' perspective, we should not be surprised, however, as the vast majority of banks have rarely been a supporter of businesses in the UK as generally speaking, the percentage of a banks profits that are generated by business lending is minimal, always has been.
Not lending for residential mortgages is extremely serious and this is new as the chaotic financial services regulations are making matters worse and frankly being used by the banks as a reason not to lend. Only a few years ago it was estimated that the property market generated around 38% of all financial services gross revenue; 33% of all building and construction and the smaller the company the more likely you are to get hit. More worryingly around 64% of all small builders, decorators, electricians, plumbers, carpenters depended on extensions and small build projects. Residential lending has fallen off a cliff and there is unlikely to be a recovery from this double-dip recession until the banks want to start lending again and stop building cash reserves driven by the concerns in Europe.
There is also a real problem with confidence or more importantly the lack of it. It’s estimated that the large corporates in the UK Top 100 are sitting on around £175 billion in cash, a problem that has also contributed to the recent double-dip recession. There is no hint that they are going to start investing in infrastructure, research and development, or shelved expansion plans. The lack of confidence does not stop there as you only have to look at the number of pubs, restaurants and retailers we help to know there is still very little spending going on too.
Unless we can find a way to encourage these large corporates to start investing and the average consumer to start spending we cannot depend on the banks to come to the rescue in the recession the second time around. Dr Adam Posen of the Bank of England’s Money Policy Committee has stated that he believes the economy will struggle until the banks start lending again. Until the situation in Europe is resolved I would not hold your breath as far as banks are concerned.
I wish there was a magic want to solve the problems in Europe and improve consumer and corporate confidence, but there isn't one. My advice is, ‘batten down the hatches’ and expect things to get worse this year. Streamline and focus on your strengths in your business as you will find little in the way of external support from the banks and although the news about the double-dip recession is gloomy, try not to focus on what the press are saying and spend that time thinking about how you can fortify your business model.
If you have tried to trade on, but for one reason or another business just has not improved pick up the phone for genuine help and support through times of insolvency. Speak with one of the team on 08000 746 757.
