Small signs of recovery must be nurtured in 2009 Budget

The Forum of Private Business (FPB) is urging the Government to put in place a strategy in next week’s Budget to nurture economic recovery by boosting business and consumer confidence.

The call for action follows research showing some small businesses are beginning to experience an improvement in market conditions and the availability of credit.

In all, one in four members (26%) surveyed as part of the FPB’s sixth Economic Downturn Panel, published on 17 April, reported an improvement in the market for their products and services – more than the 23% which reported a deterioration. This is the first time since the Panel was launched in November 2008 that more business owners have experienced positive rather than negative market conditions. More than half of respondents (51%) saw no change in the market.

In addition, 8% of businesses surveyed in April said access to finance has improved. In the previous month’s survey, not one respondent reported an improvement in credit. However, in April, 19% experienced a deterioration in the availability of credit and 73% cited no change.

"There appear to be grounds to be cautiously hopeful, but we are still a long way from genuine and sustained economic recovery. It is important to remember that the optimism reported by business owners in January declined significantly the following month," said Phil Orford, chief executive of the FPB. "In order to capitalise on these positive signs, the Government must launch a long-term, strategic plan in the forthcoming Budget; one that helps small businesses survive and grow, and become a catalyst to broader economic prosperity."

Significantly, not a single business owner reported an improvement in risk management carried out by financial services organisations (21% said it had deteriorated, although this was less than the previous month). In addition, no one saw an improvement in late payments, which 56% said have worsened, with 24% reporting increased cash flow difficulties as their ‘key issue’.

Although the provision of credit from banks has improved marginally for some small businesses, the cost of finance remains a significant barrier. The average interest rate for loans imposed by banks is 6.4% and for overdrafts 6.8%, both of which are well above the Bank of England base rate of 0.5%. In addition, 20% of the small businesses surveyed reported an increase in banking fees – a hike of 42% in overall fees over the six months since the Panel was first surveyed.

Just 5% of respondents believe that support from the Government has improved, with the same number reporting an improvement in support from the banks. In all, 25% cited a deterioration in government support and 41% a decline in bank support.