Credit confusion creates ‘fear the worst’ mentality and costs jobs
Feb 10 2009 Liz Mayes, assistant regional director, CBI North East
YESTERDAY we revealed the findings of CBI’s first monthly Access to Finance Survey. Feedback from members showed that without urgent action from the Government, the credit crunch will get even worse in the next three months.
It found 63% of firms who sought new finance said its availability had worsened in the past three months. More worryingly, a similar proportion say it will deteriorate even further in the next three.
Nearly two in five firms say they have cut staff in the three months because of credit issues. This rises to almost half when it comes to large firms, 40% of which have also cut production. CBI has urged the Government to move quickly to set out when support packages to tackle the credit crunch will come into effect, and implement them quickly. Each day, constrained credit is damaging our economy. Lack of clarity creates a “fear the worst” mentality and could be costing people’s jobs.
The cost of finance has increased sharply for many businesses, particularly for new lines of credit. New borrowing costs are now more likely to be pegged to Libor rather than the Bank rate but, despite the recent falls in Libor, overall borrowing costs continued to rise. This was coupled with higher arrangement fees and slower, more complex administration.
The survey showed problems with trade credit insurance also continue. Two-fifths (39%) of firms surveyed use the insurance to cover supply of goods, and two-thirds (65%) of them say its availability has worsened. This threatens their ability to win contracts and supply customers.
The survey shows obtaining investment capital is most challenging and that the crunch is affecting firms’ ability to operate. It is not surprising some are taking pre-emptive action to protect their longer-term future.
CBI is asking the Government for a timetable showing when different measures to repair credit flows will come into effect. This would increase business and consumer confidence, and help companies plan instead of cutting activity because they fear the worst and are not clear when the situation may improve.
Liz Mayes, assistant regional director, CBI North East
