Business confidence comes under pressure

Steven Law, partner for business recovery at Ensors Chartered Accountants, analyses the local recession

Steven Law, partner for business recovery at Ensors Chartered Accountants, analyses the local recession

THERE can be no doubt that this is a worldwide recession. Few countries in the developed world are escaping the severe impact of the recession and when we suffer so does the developing world.

Officially, the country only went into recession earlier this year. However, many businesses have been suffering since the collapse of the financial markets following the events at Northern Rock and Bear Stearns. Never before has the financial sector led the economy into recession; making these unprecedented times and more difficult to identify with any certainty the signs of sustained recovery.

The eastern region should be more resilient to recessionary pressures than many other UK regions. The diversity of our business sectors will stand us in better stead than many other regions, some of which rely on a small number of industries, such as car manufacturing, to generate the wealth in the region. We are fortunate that a significant player in the local economy is agriculture, which together with its related businesses is fairly recession proof. However, a recent survey has challenged that theory.

In the first quarter of 2009, a survey by the Institute of Chartered Accountants in England & Wales found that “business confidence” in the eastern region was the less pessimistic in the country. Businesses in the region expected turnover to grow, on average, by 1.6% over the next 12 months compared to minus 0.3% for the whole of the UK. So far so good.

However, the same survey for the second quarter of 2009 found that businesses in our region now expect turnover to fall by 1.2% over the next 12 months. This is the first ever time the quarterly survey has predicted a drop in turnover in the eastern region. Profits in the region have also suffered their steepest ever fall, plunging by 2.8% over the past year, although the rate of decline is predicted to reduce to 0.3% in the next year.

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According to the survey, confidence among businesses in the eastern region is now lagging behind the UK average as 32% of local firms expect their business performance to deteriorate in the next 12 months. The UK average is minus 28%.

What I think we are seeing is the impact of weighting of the service sector in our region. Whereas manufacturers in other areas are seeing increased levels of orders as customers replenish stocks, our local service-led economy is still suffering from a low level of transactional work.

Until access to business capital improves, our local economy will continue to suffer. I am heartened by recent meetings with bankers and note that there is a real desire to pursue rigorous lending programmes to viable, asset-backed businesses. Let us hope that this flow of funds comes sooner rather than later.