Smaller firms geared for strong recovery

CHAIRMEN and chief executives of smaller quoted companies are gearing up for a strong recovery in the UK economy, a survey by SG Warburg, the merchant bank, found.

Six out of 10 business leaders report an increasing order flow compared with three months ago. Seven out of 10 predict that they will have even more work to do over the next three months.

However, while volumes are rising, price pressures appear to be more subdued. More than half those questioned predicted that selling prices would remain unchanged during the next quarter.

George Hodgson, Warburg's head of investment strategy, said examination of trading statements gave investors the best indications about the economic outlook. 'Looking back over the period of recession, you would have learnt more about the future by listening to the views of company chiefs than you would have done studying economic forecasts which have been at times misleading.'

But despite delivering a broadly rosy picture of business prospects, 90 per cent of respondents want lower interest rates, with 42 per cent opting for base rates at 5 per cent, and half 4 per cent or below.

Richard Hickinbotham, Warburg's small companies analyst, said the findings justified the optimistic share price ratings enjoyed by the junior section of the stock market.

According to Warburg estimates, small companies will increase earnings per share by 30 per cent this year. Their share price rating is 18 per cent above the stock market average.