Business leaders fear new recession

Independent poll reveals fresh pessimism at prospects for economy

The number of business leaders detecting the green shoots of an economic recovery has fallen for the first time since April, raising fears that the country is heading for a "double-dip" recession, research carried out for The Independent has found.

The renewed gloom in industry – revealed in a survey of senior business people – comes after months of cautious optimism that Britain could soon be past the worst of the downturn.

Alistair Darling, the Chancellor, will summon bank chiefs today to instruct them to improve their support for companies struggling to survive. Small firms have repeatedly protested that banks are still refusing to lend cash to keep them afloat, or are offering it at punitive rates.

The ComRes poll found that the proportion of business executives who spotted signs of recovery in their sector dropped from 37 per cent in June to 33 per cent this month. The number seeing no signs of recovery rose from 53 per cent to 57 per cent.

It is the first time that the "green shoots" index has fallen since its launch in February. It will alarm ministers, who are banking on a relatively short 'V-shaped' recession, in which the economy starts to grow by the end of this year.

A 'W-shaped' downturn, in which the economy slips back, could scupper Gordon Brown's hopes of fighting the election on a platform of having steered the country through the worst of the economic and financial storm.

Stephen Alambritis, of the Federation of Small Businesses, said companies had encountered new problems within the last fortnight – just at the moment they thought they could see a clear route back to growth.

Writing in The Independent today, Mr Alambritis suggests the arrival of swine flu is partly to blame. He says: "With hundreds of thousands of workers set to be immobilised at home, and equal numbers of consumers staying put, it is inevitable that production will fall along with demand."

The growing pessimism was underlined by last week's disclosure that the economy contracted by 0.8 per cent in the second quarter of this year – far worse than expected and leaving a question mark over Mr Darling's Budget forecasts for economic growth.

Roger Bootle, the economic adviser for Deloitte, last night said a W-shaped recovery was "certainly possible". He said the immediate economic outlook had improved, but warned: "There remains a huge amount of uncertainty about what shape the recovery will take. My view is that it will be sluggish and protracted."

In a downbeat report published today for Deloitte, he says confidence in the financial sector has picked up but cautions that it could easily be dented. The Bank of England's decision to print money – the policy of so-called "quantitative easing" – has had a "far from spectacular" impact on the economy, and Mr Bootle warns: "A severe fiscal tightening is looming after the general election."

Britain endured a W-shaped recovery from the recession of the mid-1970s when modest growth petered out and the economy contracted again before steady growth finally resumed. That scenario haunts ministers who fear that rising oil prices could strangle any upturn. With the world economy more interconnected than ever, they also believe other countries may need to boost their economies to ensure a return to growth. But France and Germany are sceptical about the need for a further fiscal stimulus.

Mr Darling will challenge leaders of the major banks – both those rescued by the taxpayer and those that remain independent – over accusations that they are charging more for credit when interest rates are at historically low levels. Warning bankers they had not been saved as "some sort of charitable act", he went on: "We did it because if you don't have a banking system that creates credit for businesses then you will make recovery and prosperity after that much more difficult."

Speaking on BBC1's Andrew Marr Show, he said: "I am extremely concerned at what the banks are doing for the small and medium-sized businesses in this country. What companies are being charged does seem to have gone up relative to what banks are actually having to pay because of the fact we have got very low interest rates."

Vince Cable, the Liberal Democrat Treasury spokesman, said: "It is amazing the Chancellor of the Exchequer has only just woken up to the fact that this is a problem. We have been warning about the lending crisis, including in Government-owned banks, for months. The problem isn't just about the cost of borrowing, but the difficulties which many companies who are solvent, with a good credit history, have in obtaining bank credit without unreasonable demands for personal security and charges."

The Conservatives claimed the banks were not lending because of lack of confidence in the government schemes set up to rescue them. Mark Hoban, the shadow Treasury Minister, said: "This failure is costing jobs and businesses."

Angela Knight, chief executive of the British Bankers' Association, said: "As far as the major banks are concerned, they are lending and increasing their lending." She added: "People say, 'look, base rate is down to 0.5 per cent, so why do you charge what you do for lending?' The answer to that is that you can't get the money at that rate."

ComRes interviewed 178 business leaders between 14 and 21 July

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