Business leaders fear new recession

Author: By Nigel Morris and Andrew Grice

The renewed gloom in industry ? revealed in a survey of senior business people
? comes after months of cautious optimism that Britain could soon be past
the worst of the downturn.

Alistair Darling, the Chancellor, will summon bank chiefs today to instruct
them to improve their support for companies struggling to survive. Small
firms have repeatedly protested that banks are still refusing to lend cash
to keep them afloat, or are offering it at punitive rates.

The ComRes poll found that the proportion of business executives who spotted
signs of recovery in their sector dropped from 37 per cent in June to 33 per
cent this month. The number seeing no signs of recovery rose from 53 per
cent to 57 per cent.

It is the first time that the “green shoots” index has fallen since
its launch in February. It will alarm ministers, who are banking on a
relatively short ‘V-shaped’ recession, in which the economy starts to grow
by the end of this year.

A ‘W-shaped’ downturn, in which the economy slips back, could scupper Gordon
Brown’s hopes of fighting the election on a platform of having steered the
country through the worst of the economic and financial storm.

Stephen Alambritis, of the Federation of Small Businesses, said companies had
encountered new problems within the last fortnight ? just at the moment they
thought they could see a clear route back to growth.

Writing in The Independent today, Mr Alambritis suggests the arrival of swine
flu is partly to blame. He says: “With hundreds of thousands of workers
set to be immobilised at home, and equal numbers of consumers staying put,
it is inevitable that production will fall along with demand.?

The growing pessimism was underlined by last week?s disclosure that the
economy contracted by 0.8 per cent in the second quarter of this year ? far
worse than expected and leaving a question mark over Mr Darling?s Budget
forecasts for economic growth.

Roger Bootle, the economic adviser for Deloitte, last night said a W-shaped
recovery was ?certainly possible?. He said the immediate economic outlook
had improved, but warned: ?There remains a huge amount of uncertainty about
what shape the recovery will take. My view is that it will be sluggish and
protracted.?

In a downbeat report published today for Deloitte, he says confidence in the
financial sector has picked up but cautions that it could easily be dented.
The Bank of England?s decision to print money ? the policy of so-called
?quantitative easing? ? has had a ?far from spectacular? impact on the
economy, and Mr Bootle warns: ?A severe fiscal tightening is looming after
the general election.?

Britain endured a W-shaped recovery from the recession of the mid-1970s when
modest growth petered out and the economy contracted again before steady
growth finally resumed. That scenario haunts ministers who fear that rising
oil prices could strangle any upturn. With the world economy more
interconnected than ever, they also believe other countries may need to
boost their economies to ensure a return to growth. But France and Germany
are sceptical about the need for a further fiscal stimulus.

Mr Darling will challenge leaders of the major banks ? both those rescued by
the taxpayer and those that remain independent ? over accusations that they
are charging more for credit when interest rates are at historically low
levels. Warning bankers they had not been saved as ?some sort of charitable
act?, he went on: ?We did it because if you don?t have a banking system that
creates credit for businesses then you will make recovery and prosperity
after that much more difficult.?

Speaking on BBC1?s Andrew Marr Show, he said: ?I am extremely concerned at
what the banks are doing for the small and medium-sized businesses in this
country. What companies are being charged does seem to have gone up relative
to what banks are actually having to pay because of the fact we have got
very low interest rates.?

Vince Cable, the Liberal Democrat Treasury spokesman, said: ?It is amazing the
Chancellor of the Exchequer has only just woken up to the fact that this is
a problem. We have been warning about the lending crisis, including in
Government-owned banks, for months. The problem isn?t just about the cost of
borrowing, but the difficulties which many companies who are solvent, with a
good credit history, have in obtaining bank credit without unreasonable
demands for personal security and charges.?

The Conservatives claimed the banks were not lending because of lack of
confidence in the government schemes set up to rescue them. Mark Hoban, the
shadow Treasury Minister, said: ?This failure is costing jobs and
businesses.?

Angela Knight, chief executive of the British Bankers? Association, said: ?As
far as the major banks are concerned, they are lending and increasing their
lending.? She added: ?People say, ?look, base rate is down to 0.5 per cent,
so why do you charge what you do for lending?? The answer to that is that
you can?t get the money at that rate.?

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