CBI welcomes signs of the credit freeze beginning to thaw

Published on Monday 1 June 2009 21:33

FIRMS across Britain are still struggling to raise money, but market conditions for business finance are easing slightly, a report from the CBI revealed today.

The latest survey from the business group showed that a net 20 per cent of firms found it more difficult to raise new funds in the three months to May – an improvement on the 36 per cent reporting difficulties in March.

Although, the figure is still negative, the findings will raise hopes that the credit freeze is beginning to thaw.

Iain McMillan, director for CBI Scotland, said firms north of the Border were experiencing the same improvement in the availability of credit as their counterparts in the rest of the UK. But he warned that the cost of credit was still high, putting extra pressure on companies already feeling the financial pinch.

Ian McCafferty, chief economic adviser at the CBI, said: "Credit availability is still a concern, but the severity of the situation is easing, compared with a few months ago.

"Big companies who were encountering serious problems getting credit at the start of the year are still finding it difficult, but they expect that the supply of existing credit will get slightly easier over the next few months."

But the CBI said there were still "significant" problems with gaining trade credit insurance, which covers suppliers against the risk of not being paid in the event of insolvency.

The survey said a net 54 per cent of firms were still struggling to gain the cover, despite a 5 billion government-backed boost to the sector in April's Budget that will run until the end of this year.

McCafferty added: "While the government has made some welcome moves to improve the availability of trade credit insurance, it remains a very live issue for many businesses and more could be done to ease the pain."

Larger businesses, with more than 5,000 employees, found finance most easy to come by in the past three months, reporting a "significant slowing" in the rate of decline of new credit.

Small and medium-sized firms also reported an easing, although not at such a fast pace.

McMillan said: "In discussion with our members in Scotland, we have found that concerns are easing about access to finance, but there are still some concerns about the cost of credit."

But the UK survey revealed fewer businesses found that the cost of finance rose in the three months to May than those surveyed in the last report in March.

McMillan added: "It is unfortunate that the banks have to pass on the higher cost of borrowing to their customers, but it happens in a downturn. When the country recovers and we move out of recession, the reverse will be true."