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Friday
Dec182009

Show me the money - Funds issue for British businesses

Despite Bank of England attempts to boost money supply and stimulate lending by pumping £200 billion into the UK economy it would appear that access to funds is still a major issue for much of British businesses.

The British Chambers of Commerce reported recently that a third of companies have found it more difficult to access finance over the last three months. Little wonder than that the Office for National Statistics (ONS) reports that business investment fell by 3 per cent (a real terms value of £885 million) compared with the second quarter of the year.

The difficulty in obtaining affordable funds for investment though a problem doesn't seem to be the main issue. Of the 400 businesses surveyed, 64% said that their biggest barrier to growth over the next 12 months was in fact a lack of customer demand. It’s a nervousness that clearly reflects the many question marks that still exist over the ability of UK and European economies to make a full recovery in the near future.

Part of the problem, especially for SMEs appears to be the lack of 'trickle through'. Though huge sums have been injected much of it has still not reached those that need it most in the form of affordable and accessible lending. Referring to new funds in the system David Frost, Director General of the British Chambers of Commerce said, 'quantitative easing is still not reaching small and medium-sized businesses in anything like the scale required for business to invest for future success.

David Kern, the chief economist at the British Chambers of Commerce (BCC), added: 'The government must remove all obstacles hampering businesses from maintaining and recruiting skilled labour, and from accessing the required finance to rebuild capacity.'

Options open to the Government are limited though. On the one hand it must take care not to suffocate any green shoots of recovery with overzealous spending cuts and tax rises.

This caution needs to be balanced with a realistic appreciation of the huge debt accrued and that it must be addressed. The last thing the UK economy needs right now is to have its credit rating downgraded and have to pay subsequently higher rates on the debt.

It's a fine balancing act and whether measures will be taken in the very short term or left until after an election remains to be seen.

What would you do?

 



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