Cash help for firms as the downturn deepens

Jan 14 2009 by Karen Dent, The Journal

CASH injections to credit-starved North East companies due to be announced today have been welcomed but new findings have painted a grim picture of how the region is performing in comparison to the rest of the UK.

Ministers are preparing to announce measures to free up access to credit for viable small firms which could help refinance £20bn worth of debt falling due for repayment this year.

This is just the type of action North East industry figures have been calling for in the last few weeks.

Tony Sarginson, the regional manager of manufacturing organisation the EEF, said: “By underwriting loans, the Government scheme could provide welcome breathing space for firms faced with cash-flow problems after credit markets dried up. But as business waits for credit markets to thaw, the Government needs to ensure that vital parts of the supply chain are not lost amid this maelstrom and quickly put in place support for trade credit insurance and measures to protect skilled jobs.” The expected announcement was also welcomed by the North East Chamber of Commerce (NECC), which has just published data showing a fall in confidence, employment and exports in the region.

NECC head of policy and research Ross Smith said: “Banks need to be able and willing to lend to businesses with good business models and potential. Confidence is absolutely key. We are seeing a decline in it at all levels, from consumers on the High Street and that’s gone right up through businesses as well.”

The NECC surveyed its members to produce a table comparing the last three months of 2008 with the previous quarter.

The figures form its quarterly Business Barometer which feeds into a British Chambers of Commerce national report showing the region’s manufacturing and service sectors were facing problems in a number of key areas.

The North East had been considered one of the strongest exporting areas but export sales and orders plummeted in the final three months of 2008 more dramatically than elsewhere in the UK. Figures on employment during the last quarter also showed a large fall in the North East.

But Mr Smith said: “This is a trends survey, it measures the direction of travel. It is not scientific in measuring the extent of that. It is dangerous to draw too many hard and fast conclusions.

“Regionally, we have consistently had the biggest ratio of export to imports so a decline on exports to imports is going to hit the region’s economy more than other parts of the country.

“That demonstrates just how quickly we have seen things have changed. There was a long while that the credit crunch was impacting on quite isolated sectors and we’ve seen in recent months it has spread to other businesses in many other sectors. People are not expecting to see a turnaround in such a short period of time.”

However, Mr Smith insisted the latest figures should not blight what the region had achieved.

“We are coming on the back of some substantial growth in the North East in the past few years. We have seen this region be the fastest growing in the UK,” he said. “In the longer term, the trend for this region has been upwards. The long term prospects for this region continue to be very positive.”