A really interesting analysis in Richard Lambert’s leader column in Business Voice magazine. Post-emergency Budget, he reminds us that, to rebuild Britain’s economy, we need the Office for Budget Responsibility’s forecasts to come about (1.2 per cent GDP growth this year, followed by still gentle 2.3, 2.7 in the following years). “If this growth does not materialise, we are all in trouble,” says the CBI director-general.
Business, he writes, “is right at the heart of the recovery story.” If businesses begin to feel confident enough to invest in stock, working capital, plant and assets, and if exporters take advantage of a weak sterling, then the books begin to rebalance.
Businesses, and their owners, will weigh up two major considerations: one, their confidence in future demand. And this, as pretty well all the owner-managers I speak to say, is still a bit shaky. For many, business is actually quite bright at the moment – a wholesaler of duvets told me recently that he was seeing 67 per cent year-on-year growth; a pub landlord scoffed at pronouncements from Gordon Ramsay et al that his sector was in the doldrums. A good-quality product and great service will still woo customers, he insisted.
But ask such entrepreneurs to cast their eyes forward, and the caution kicks in.
That’s where a more benign credit environment would help. Base rates are still anchored at 0.5 per cent (although, as Lambert notes, one Monetary Policy Committee member had enough concerns about inflation to recommend a rise in the last meeting), but terms and rates are pretty severe. At our Entrepreneurs’ Summit in May, the big-league investor-businessman Michael Jackson (former chairman of Sage) said that the behaviour of the banks was still “appalling”. Chancellor George Osborne, in his Mansion House speech last month, said that the banks’ uncertainty over their own futures is leading them to hoard cash rather than pass it on to business.
This has the feeling of crunch time. If credit conditions can be loosened without triggering inflation, businesses might just have the courage to invest. A continuing squeeze, accompanied by weak consumer demand, could tip us to the other side.
Where do you stand on these issues? What’s been your recent experience of getting finance? Are you seeing inflationary pressures in your sector?
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