UK companies fear worst is still to come
By Daniel Pimlott, Economics Reporter
Financial Times Published: February 9 2009 00:12
Businesses believe that the credit crunch is going to get even worse over the next three months, according to a survey of companies? borrowing published on Monday.
The survey underlines how little progress has been made in kick- starting lending.
Almost as many UK businesses foresee a deterioration in their ability to obtain new loans as said they had suffered a drop in their ability to get new finance over the past three months, when financial markets suffered an unprecedented freeze after the collapse of Lehman Brothers.
While 63 per cent of businesses who had sought new credit said its availability had worsened in the past three months, 59 per cent said they expected it to be harder to access in the next three months, the survey by the CBI employers? group reported.
Companies? fears that the worsening in credit conditions will continue unabated prompted the CBI to urge the government to provide a timetable for the plans it announced in January to stabilise the banks and encourage lending.
?They need to get on with it,? said Richard Lambert, director-general of the CBI. ?The government must move as quickly as they possibly can [to make clear] when these initiatives will kick in so that firms can make plans about their future.?
Chancellor Alistair Darling unveiled plans last month to cover bank losses above a certain level, provide guarantees on loans to companies, and opened the way for the Bank of England as of this Friday to buy £50bn in corporate debt in order to ease credit. Labour has also moved to boost lending to small and medium enterprises and the auto industry.
But while the Bank?s asset purchase facility will be ready to start, loans to small businesses are in their early days and other important parts of the plan are still on the drawing board.
The CBI?s survey outlines how blocked flows of credit are hitting businesses. Nearly 60 per cent of companies report reduced capital investment, nearly 40 per cent have cut jobs, and a similar proportion have cut output, all directly because of problems with credit.
The troubles companies face in borrowing are helping to put the corporate sector in an increasingly precarious position. Bank of England data last week showed that companies? cash deposits at banks declined at a record pace in the final quarter of last year, while lending to services, manufacturing and construction companies fell.
On top of less access to credit, a majority of companies said they had seen an increase in arrangement fees and the cost of credit, according to the CBI, while a large minority said they had been forced to post additional security against their borrowing.
Worst hit have been very big companies with more than 5,000 staff, 82 per cent of which have seen their access to new credit drop amid the collapse in demand for corporate paper.
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