Businesses believe credit squeeze will get worse

The majority of British businesses believe the squeeze in global credit markets is set to worsen over the coming months, forcing them to lay off many more workers, and increasing the risk of insolvency.

According to the CBI's first survey of lending, almost three in five businesses expect credit to become even scarcer over the next quarter, which in turn will threaten the future of their companies.

Meanwhile, new research by accountants KPMG has revealed that one in three companies plan to make job cuts during the first quarter of the year. Furthermore, one in eight companies plan not to give their staff any pay increases this year.

The CBI called on the Government to set out a clear timetable for measures announced last month to boost credit for the economy, and urged it to speed up the introduction of as many measures as possible. Without more certainty about the Government's willingness to support the economy and the financial system, nervous businesses will resort to slashing costs and jobs, added the lobbying organisation.

Richard Lambert, director general of the CBI, said: "We have urged the Government to move as quickly as possible to set out when the various support packages to tackle the credit crunch will come into effect and to implement them quickly.

"In the very short term, good, viable businesses are facing real pressures on costs and cash flow and are thinking about painful decisions of making skilled workers redundant."

The recession has already taken a heavy toll on the number of new businesses being launched. According to the accountants Wilkins Kennedy, the number of new companies being started fell at its fastest rate for more than 35 years in 2008.

Roger Williams, partner at Wilkins Kennedy, comments: "These figures show just how badly the small business sector is being hit by the downturn. The slump in new companies being created last year is more than twice as severe as the drop during the 1990/91 downturn when there was an 8.6 per cent decline in new start-ups.

"It gives you some indication just how unfavourable the climate now is for starting a new business if you have to go as far back as the oil crisis of the 1970s to find a steeper decline in new company formations."

The Federation of Small Businesses criticised the Government for not doing enough to help small enterprises, claiming the measures it has taken to date have had "no impact".