Small businesses have urged Sir Mervyn King to take “bold action” to kick-start an economic recovery after the Bank of England cut its growth forecasts for this year and next.
The gloomy outlook from the Bank’s Governor, who said the most likely scenario for this year was for flat output, led to calls for radical steps such as a National Insurance “holiday” for small firms in a bid to boost jobs and output.
King’s downbeat forecast, which he blamed on “storm clouds” rolling in from the eurozone and tight lending conditions, raised expectations that the Bank may raise its quantitative easing programme beyond its current £375 billion limit once the latest tranche of asset purchases is completed in November.
Three months ago, the Bank had forecast growth of 0.8 per cent for the year, but those hopes evaporated as the UK’s economic output fell by 0.3 per cent in the first three months of the year and 0.7 per cent in the second quarter. It now predicts zero growth this year and about 1.9 per cent growth in 2013, down from 2.4 per cent.
British Chambers of Commerce director general John Longworth described the latest forecast as disappointing and said the UK government could do more to promote business growth.
He said: “One of the key things the government and Bank of England need to do is build the business confidence so those businesses which have cash start to invest and grow the economy.”
Graeme Leach, chief economist at the Institute of Directors, said yesterday’s figures also suggested that the Bank could cut interest rates from their current record low of 0.5 per cent, although Howard Archer, chief UK economist at IHS Global Insight, said rates would probably remain on hold until at least late 2014.
The rate of inflation, currently at 2.4 per cent, is now expected to hit the Bank’s 2 per cent target towards the end of this year, earlier than previously expected, and could slow further to about 1.5 per cent towards the end of 2013, relieving some of the pressure faced by cash-strapped consumers.
However, Andy Willox, Scottish policy convener of the Federation of Small Businesses, said a lack of confidence was hampering any meaningful recovery and the Bank needed to make sure its £80bn Funding for Lending scheme fulfilled its promise of widening access to cheaper loans. He said: “We need a real push to get more private sector jobs into the economy through, for example, a National Insurance contributions holiday for small businesses when they create new posts.
“Similarly, we need moves like the Funding for Lending scheme to get finance to where it’s needed, not simply giving more money at a lower rate to those who would have received it regardless.”
King said early feedback was positive, with some banks cutting their loan rates, but Samir Desai, chief executive of peer-to-peer lender Funding Circle, said the government should do more to ease the flow of finance to small firms.
He added: “The government and other institutional investors could be directly lending to small business in the UK tomorrow, if they wanted to.
“This would enable thousands of small businesses to start accessing finance in a matter of weeks, and focus all of their energy on growing their businesses and driving the economic recovery.”
Invoice financing specialist Bibby Financial Services said the recession was having a dramatic effect on Scottish SMEs, with just 34 per cent reporting an increase in new customers during the second quarter, down from 65 per cent in the first three months of the year.
However, despite the gloomy outlook, the proportion of Scottish firms that felt confident about the future had risen to 35 per cent, from 16 per cent in the first quarter, and nearly half were investing in their business to take advantage of any economic recovery.
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Weather for Edinburgh
Saturday 18 May 2013
Temperature: 9 C to 13 C
Wind Speed: 18 mph
Wind direction: North east
Temperature: 9 C to 18 C
Wind Speed: 8 mph
Wind direction: North east