We should be looking at SMEs

Jun 16 2009 by Neil Warwick , The Journal

IN the first week of June, the monthly Purchasing Managers Index (PMI) was published. The PMI, relating to the previous quarter, measures business-to- business activity in manufacturing, construction and services.

The index rose over the fifty point mark – a sign of expansion. In the second week of June, the National Institute of Economic and Social Research (NIESR) reported that the trough of the recession was in March 2009. If so, it follows that perhaps recovery will be sooner than anticipated. There was also a brief and as yet unquantified report that house prices, as an average, had begun to rise modestly.

How do these positive signs sit with reports that there will still be a modest fall in gross domestic product (GDP) in the next quarter, and that unemployment is still on the rise? In simple terms, you do not need every indicator to be positive for economic recovery to begin. Statistically, it is likely that GDP and employment figures will lag behind other indicators. There are also a number of “cautiously optimistic” people who predict the “dead cat bounce” or the “false bubble indicator”, where markets begin to recover only to crash back down again.

It seems better therefore to deal in facts. The PMI and NIESR figures should be welcomed along with the fact that UK manufacturing increased slightly in April. The International Monetary Fund (IMF) attributes this to the fact that upturns in recessions that begin in the financial sector tend to be “creditless”, ie the economy starts to recover before the banks start lending again. If this is the case, it would be common sense for banks to refocus on the SME sector. If credit is limited or there is caution about lending, it follows that the SME sector would be the one to back first.

With public sector spending about to be cut after a 2010 election and a risk that recovery could be much faster than we are prepared for, now is the time to get the building blocks in place for the SME sector, particularly in manufacturing, to ensure the region can take advantage of the positive but turbulent times ahead.

For information on how Dickinson Dees can assist SMEs, please contact Neil Warwick on (0191) 279-9375 or at neil.warwick@dickinson-dees.com