Firms cautious over recovery prospects

EXPECTATIONS of economic recovery among small and medium sized firms in the East of England have receded over the past six months, according to a new survey.

The study, the fourth of its kind carried out for business insurer QBE, found that 92% of SME owners and managers in the region believe it will be at least a year before the UK sees a full economic recovery, a significant increase on the 76% recorded in the previous survey six months ago.

The latest findings also illustrated how the current economic climate is continuing to challenge SMEs in the region, with more than one third (37%) saying they would experience difficulties if current conditions were to persist.

However, this represents an improvement on six months ago, when 54% of SMEs said that they thought they would face difficulty if there was no positive economic change.

The findings also compared favourably with the rest of the country, with the East England being the only area in the UK with no firms saying they would be unlikely to survive should conditions continue.

In contrast, 10% of SMEs in London and 14% in the Midlands and Wales said they would face bankruptcy if the current economic climate did not improve.

The survey also indicated that a healthy 90% of SMEs in the East of England expect either to maintain or increase sales turnover in the second half of 2010, well above the national average of 77%.

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However, while a majority of the region’s SMEs anticipate solid profits in the second half of the year, only 13% said that they believed it would be easy or very easy to access commercial credit.

This concern may also have influenced the 74% of respondents who said they did not plan to hire more staff during the rest of 2010, which would indicate that most SMEs do not feel they are in a position to invest in organic business growth.

The perceived shortage of credit may also partly explain why only half (50%) of firms asked said they would experience problems with an increase in interest rates while two thirds (66%) said they felt a rise in inflation would create problems.

Jon White, commercial manager for QBE European operations, based in Chelmsford, said: “The recent survey findings demonstrate that small to medium sized businesses in the region have weathered the recession well but that, looking forward, we need to provide them with the support to develop and grow.”

n The Essex branch of the Federation of Small Businesses yesterday called on the Government to extend the planned National Insurance “holiday” for new businesses across the whole of the UK after research showing that more than half of firms in the East of England are operating at below capacity.

Essex FSB warned that business confidence had worsened during the second quarter of 2010, suggesting that the recovery was still fragile and that more should be done to support private sector growth.

Quoting the latest FSB Voice of Small Business Index, published yesterday, Essex FSB chairman Iain Wicks, said: “In a survey of over 1,200 members of the FSB, only a net 4% of respondents believe that business prospects will improve in the third quarter of the year, down from 16% in March.

“The survey also suggests that here in the East of England 56% of small firms are operating below capacity, with those in the manufacturing sector faring much better than service sector firms.

“This further highlights how the UK economy is still some way from a full-speed recovery and that more support is needed even in allegedly prosperous parts of the country such as Essex.

“With Government proposals to exempt the East of England, London and the South East from the National Insurance holiday for new businesses, announced in the Emergency Budget, the FSB is concerned firms in the region will not start-up and that existing businesses will not have the support they need to grow and take on more staff.”