Written by Tom Kirkpatrick, Marketing Executive for MarketInvoice
Wednesday, 23 May 2012 09:49
The economy has shrunk in the first quarter of 2012, technically tipping the UK economy into a double-dip recession.
Countless column inches have been used to deconstruct the latest figures for the UK’s Gross Domestic Product (GDP) that were released recently. The data released by the Office for National Statistics (ONS) showed that the economy had shrunk unexpectedly by 0.2% in the first quarter of 2012, technically tipping the UK economy into a double-dip recession.
The economy is deemed to have double-dipped when there have been two consecutive periods of negative growth, in this case the recent figures followed on from Quarter 4 2011’s 0.3% retraction in GDP. What was revelatory was that economists and experts had predicted the ONS data to show a growth of 0.1% in January through March. This was a picture painted by a number of surveys.
Some believe the figures represent an unduly pessimistic picture of the state of the economy and should be taken with a great pinch of salt. It is likely that the data will change as more information becomes available. The CBI said manufacturers were at their most optimistic for two years, while Nationwide Building Society said that consumer confidence was at its strongest for nine months.
What do these revelations mean for the small business?
Thus far in Quarter 1 2012, job creation has been on the rise, and studies have shown that more than half of small businesses are expecting to grow this year, so the confidence is still there. The treasury will point to the bigger picture, that conditions will ease in the future. It can’t be denied however that the recession will sap confidence, deterring businesses from investing, costing growth and jobs. As has been mentioned countless times already, SMEs are struggling to access working capital to fund their ventures. This is particularly down to long payment terms that blue-chip companies enforce on their small business creditors.
Britain’s economic growth is weak and in need of a recovery injection. The British Chamber of Commerce wants to see a ‘reallocation of priorities that will bolster business growth’ i.e. reducing regulation, encouraging exports and improving infrastructure. The BCC also wants the Government to reduce the deficit by introducing ‘more measures to empower businesses to drive recovery’.
All the measures announced in the budget in order to encourage bank lending, such as the Enterprise Finance Guarantee Scheme and the National Loan Guarantee Scheme are a step in the right direction, but lending growth ultimately lies in the hands of the private sector. Regulator’s high capital requirements have damaged banks’ urge to lend. Agreements like Basel III, the global framework governing the regulation of bank capital, liquidity and leverage in the wake of the world financial crisis, have created the ideal conditions for non-traditional methods of raising working capital.
Small and medium sized businesses are the lifeblood of the economy as they account for over half of the UK’s total GDP and 60% of jobs, therefore anything that is done to alleviate the latest economic pressures can only be positive. Alternative methods like invoice finance, crowd funding and peer-to-peer lending are becoming a more mainstream option to traditional bank finance. These new methods of funding will definitely help to ease the pressures on banks to lend.
The ray of hope is that the figures will be moderated at the end of the month giving us a fuller picture of the UK’s GDP in the first three months of 2012. What we should take away from this Quarter is that business confidence is very much alive and kicking. We just need the banks and other alternative lenders to maintain and improve the flow of credit, thus hopefully giving the economy a kick-start.
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