Recession fears receding as confidence returns to UK firms

Most business managers expect to emerge from impact of recession intact
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The Independent Online

British business leaders are more confident than at any time during the recession that they will make it through the downturn, research reveals today, adding to the growing optimism about the economy.

A survey from Clydesdale Bank shows that 90 per cent of business managers now say they are confident they will make it through the recession, with a third saying they are certain they will not go under.

The research also suggests the downturn may not have had as savage an effect on some companies' business as previously thought. Clydesdale said only a third of the companies it spoke to had actually suffered a reduction in business during the downturn so far.

While economists believe the UK economy began growing again over the summer – and that the third-quarter GDP figures due to be published towards the end of next month will provide official confirmation of this – there is still scope for further problems. Unemployment figures due this week are expected to show another sizeable leap in joblessness to more than 2.5 million, with most projections suggesting the numbers out of work are unlikely to begin falling before the middle of next year.

Mike Williams, a Clydesdale Bank executive, said its research suggested business leaders were becoming increasingly confident about their prospects. "These figures are promising and show that businesses are beginning to regain confidence," he added. "This is a positive sign: where confidence exists growth often follows. It has clearly been a challenging time for businesses, but these figures show there are signs of stability creeping into the market but it is still important to retain a grounded and cautious perspective as the market changes."

Clydesdale Bank, traditionally stronger north of the border, said that companies in Scotland were actually more confident than those located elsewhere in the country, and that companies based in the North of England were more positive than their southern counterparts. This may reflect the greater exposure of the economy in the South of England, particularly in the South East, to the financial services sector, where job losses are continuing.

Clydesdale Bank said it had pledged to make £1bn of new lending available to business borrowers and that it had launched a £100m fund specifically for small business at the end of June. But, leading banks remain under pressure to increase the amount of lending they offer to the business sector, amid continuing complaints that some businesses are being starved of vital credit.

The most recent Bank of England figures showed that the amount being lent by banks to business actually fell over the summer months, despite all the banks insisting that they were doing more. Ministers have threatened the banking industry with further restraints on bonuses, or even new taxes, unless lending increases over the next few months. But sector sources point out that it is facing unprecedented regulatory action, which has required it to increase capital funding at the expense of activities such as lending.

Banks also rein back on lending during recessions as default rates rise. All the banks that have reported trading updates in recent months have warned of sharp increases in bad debt from both the corporate and personal sector. The accountancy firm BDO Stoy Hayward will today warn that 55 per cent of mid-market businesses continue to find the process of securing credit difficult and lengthy.