Bleak midwinter and beyond for businesses in shadow of recession gloom - comment

As the mercury plummets and pavements become tinged with frost, the economic backdrop has also seen the temperature drop further on the back of the prospect of a prolonged recession.

The Bank of England this week warned of the longest period of recession since records began after it hiked interest rates to 3 per cent from 2.25 per cent, marking the highest jump in 33 years in a bid to temper runaway inflation.

Gross domestic product retreated by 0.2 per cent in the second quarter, and Threadneedle Street predicts that it was down by 0.1 per cent in the third, and could shrink every three months for two years – with growth only coming back in the middle of 2024. However, the bank also believes such a recession would be less than half as severe as the 2008 financial crisis, so, er, every cloud and all that.

The British Chambers of Commerce deemed the rate increase a “very blunt instrument” to control inflation, adding business confidence had already been falling at an “alarming” rate over recent months, and that followed the Fraser of Allander Scottish Business Monitor, published in partnership with Addleshaw Goddard, which found sentiment among Scottish firms had entered negative territory for the first time since the end of 2020.

The British Chambers of Commerce said raising the interest rate is a 'very blunt instrument to control inflation'. Picture: Ben Stansall/AFP via Getty Images.

With monetary policy pushing up the cost of borrowing for consumers – the Bank of England flagged a jump of £3,000 a year for households now set to renew their mortgages – firms whose fortunes are closely alloyed to disposal income will increasingly be facing sleepless nights. Major hospitality trade bodies had earlier this week warned more than a third of Britain's pubs, restaurants and hotels feared they could go bust by the end of the year as the “cost-of-running” business crisis corroded their bottom line.

That said, there was some cause for optimism in the Scottish Business Monitor survey that firms were trying to take charge of their own destiny – for example, working to lower their energy bills.

Alan Shanks, of law firm Addleshaw Goddard, said: "There are important conversations to be had ... within businesses themselves to ensure they are doing everything in their power to manage risks and successfully trade through these challenges.”