Local SME's should not be bowed by global events
- 03 Sep
August was a pretty challenging month for the global economy with the Sovereign debt crisis impacting on the Eurozone, the US credit rating being downgraded and, closer to home, rioting being seen on the streets of Britain. But what does this all mean for the UK economy?
We asked some of our clients for their views and questioned them on whether the UK is heading back into recession.
"The Eurozone is indeed in a very tricky position and the EU, as we know it, may well not survive," says Martin Pollins from Bizezia in Haywards Heath. He adds that - according to George Osborne, George Soros and many Eurozone leaders and economists - it is time to adopt an ‘all for one and one for all' fiscal policy.
"Such a policy would require ‘Eurobonds'. The Eurozone would borrow as a single entity, with the responsibility for repaying the debt falling on all member states," explains Martin. "There would then be a single interest rate for the Eurozone as a de-facto sovereign body, rather than separate borrowing costs for Germany, France, Italy, Belgium and Greece etc."
Colin Harvey, a director with Castle Corporate Finance, adds: "We are told that the risk of sovereign debt default in key areas of the Eurozone is likely to affect the price and availability of loans to businesses, but will the engine room of the UK economy - the SME business community - notice?"
He says that with ‘benchmark' base rates at a historic low for 2½ years, the cost of borrowing is still cheap, compared with four years ago. Moreover, economists think that interest rates may even fall to ¼% before the year end, and with further quantitative easing, give a horizon of further stability.
That said, recent research suggests a perception by many SME's that they would not be granted the borrowing facilities they wanted, prevented them from approaching their bank anyway," Colin continues. "With or without funding, many SME's seem to be growing steadily, but unspectacularly, much like the GDP growth rates witnessed by the country as a whole. Exports to the Eurozone are some 6% cheaper than a year ago, so our goods and services are arguably more competitive to key trading partners."
Jonathan Smithers from CooperBurnett in Tunbridge Wells says that the previous banking crisis caused a loss of confidence which halted both business and consumer expenditure so, to some extent, it was self fulfilling.
He continues: "The current debt crisis and consequent stock market falls do not appear to have dented confidence to the same extent, which may save us from another recession. Negative macro-economic difficulties will not make borrowing any easier, so the higher risk, wealth and employment creating entrepreneurial sector will continue to be discouraged, potentially delaying progress towards prosperity."
Brant McNaughton from Orpington-based Ecce Media says that recent events, including the escalating sovereign debt crisis, the US credit rating downgrade, falling stock markets and stagnating growth in the developing world leave us wondering what is going to happen next.
"None of the major developed economies have regained the output lost since the last recession," he says. "Governments are struggling to cope with implementing austerity measures to reduce deficit, retain credit worthiness and near stalling growth."
Brant explains that the Eurozone's powerhouse, Germany grew at 0.1%, with the UK at 0.2% and France at 0%.
"With so many flailing economies in the Eurozone and the necessity of the Euro to survive, the rejection of the idea of Eurobonds may well have to be revisited," he continues. "Here in the UK, many businesses have been left reeling from the impact of the riots and looting. Insurance premiums look set to increase as [insurers] try to recoup the recent costs and also the impact of a number of natural disasters."
Brant says that SME's employ 60% of the private sector workforce and are the mainstay for growth in the UK.
He adds: "The government needs to ensure that additional assistance and support is given to this sector. More pressure needs to be applied to the banks to lend at viable rates to small businesses. After all, interest rates have never been so low."
Martin Pollins adds that when it comes to the downgrading of the US credit rating, we shouldn't forget that a credit rating is simply an opinion issued by a private organisation, not a seal of approval.
"You could argue that, as the US has been downgraded, the UK is likely to follow very soon and, in fact, there are many countries in Europe that perhaps should be downgraded too," Martin continues. "No country is too big to fail. We all have to get our houses in order. If the S&P rating of the US is not reversed, the UK economy will surely suffer or at least find it harder to escape from the rigours of the recession."
So, is the UK heading back into recession? Here's what some of our clients are saying:
"Having already borne much pain in putting its house in order, and with claims to be a ‘safe haven', there is reason to be cautiously optimistic that Britain will ride out the current global storm, without being dragged back into recession."
Colin Harvey, Castle Corporate Finance
"If the markets accept that the economic strategy of this government is better than others, particularly our European neighbours, that itself may encourage more inward investment and stave off recessionary pressures."
Jonathan Smithers, CooperBurnett
"The malaise engulfing manufacturing has wrecked the recovery according to business advisers BDO who point to ‘a rapid fall in business confidence and say companies expect little economic growth over the next six months'. Their assessment is more pessimistic than earlier surveys suggesting that while the economy will continue to falter, a ‘double dip' recession will be avoided."
Martin Pollins, Bizezia
"There has been a lot of talk recently about a double dip recession; the ‘doom mongers' seem to revel in the negative. However, it is extremely difficult to see otherwise."
Brant McNaughton, Ecce Media
Neil Edwards, Managing Director of The Marketing Eye said: "Sadly, SME's are once again becoming broadly pessimistic in their outlook. Now, however, is the ideal time for entrepreneurs to invest in their businesses. Interest rates rates are low, acquisition opportunities are on the increase and investments will be rewarded when the market improves.
"The key, as always, lies in an effective marketing strategy. A considered appreciation of the target market, an unrelenting focus on meeting customer needs and an intelligent application of the full marketing mix will ensure that businesses are in good shape to capitalise on market conditions and withstand any further shocks."