Confidence on the comeback as British firms expect growth

Published on Sunday 2 August 2009 21:21

OPTIMISM among British businesses is returning, according to a new survey, with a growing number expecting orders will increase in the coming months.

The news comes just days after remarkable signs that the US economy fared better in the second quarter and may be coming out of recession.

The latest small and medium-sized business survey from the Confederation of British Industries (CBI) reveals that while more businesses still expect orders to decrease in the third quarter of 2009, the gap compared with those forecasting an increase has narrowed sharply.

Among medium-sized business – those employing between 200 and 499 staff – a greater number expect orders to rise than fall, the first time the figure has been positive in 15 months.

The survey also quizzed 480 SMEs about the general feeling of the business situation, which revealed a significant improvement for the second quarter in a row.

Only 9 per cent more businesses were pessimistic about the situation than were optimistic, compared with 42 per cent more pessimists in April and 71 per cent in January.

A series of indicators have pointed to signs that the worst of the recession may now be over in recent weeks. Last week, official figures from the UK and the US showed that while their economies contracted in the second quarter, the rate of decline was sharply down on the fall in the first quarter.

Russel Griggs, the chairman of the CBI's SME Council, said that conditions clearly remained difficult, with orders and output still falling, "but things aren't quite as gloomy as they were three months ago".

David Lonsdale, CBI Scotland's assistant director, said the result "adds credence to the view that the harshest period of the downturn may well be behind us".

He continued: "Clearly though, economic conditions remain tough, so it is crucial that government at all levels does its bit to help by keeping a firm lid on the costs under its control that affect business."

Output – the level of production – continues to fall among both small and medium-sized businesses, although less businesses are cutting activity levels than three months ago.

Small businesses expect output to continue to fall in the next three months, although medium-sized businesses are expecting output to rise, with 17 per cent more expecting production to increase than decline.

The survey also showed that the availability of capital was becoming less of an issue to firms, in particular among medium-sized business, which typically have more options available to raise finance.

Elsewhere, there are signs that the level of corporate distress may be stabilising. Figures from business advisory firm Deloitte showed that the number of companies being placed into administration in the first half of 2009 was 18 per cent higher than the start of last year, but was only 2 per cent higher than in the second half of 2008.

Lee Manning, a reorganisation partner at Deloitte, said that while the number of administrations remains high, there were signs the level "may have reached a plateau".