Access to credit still hitting business says survey

Credit availability has continued to deteriorate and companies are expecting borrowing conditions to remain difficult over the next three months, says a new CBI survey

Conducted in February, the second monthly CBI Access to Finance Survey found almost 60 per cent of firms who sought new or renewed finance lines said its availability had deteriorated in the last three months, while 41 per cent had seen no change and no firms saw an improvement. This means conditions have continued to worsen at a similar pace to those reported in January.

The cost of finance and access to trade credit insurance also continue to be fundamental issues for business. Firms continue to expect the availability of new credit to deteriorate further over the next three months, though they are less negative than they were in January (a balance of -38 per cent compared with January's -58 per cent).

Two in five firms say they have cut staff numbers over the past three months as a result of the credit crunch, a slight increase on January, and staff are working fewer hours. There was also evidence of cutbacks on training.

Ian McCafferty, the CBI's chief economic adviser said: “Significant government measures aimed at restoring credit flows are gradually being put into place, but the pace of delivery is slow. As can be seen in this survey, businesses' access to credit is just as difficult as it was a month ago. The cost of borrowing, the credit freeze and the lack of a solution on trade credit insurance are having a growing impact on business activity.”

During February, the government provided details of its Asset Protection Scheme, the Bank of England started buying corporate debt and Northern Rock said it would expand mortgage lending.

For the second month, the very largest firms, employing over 5,000 staff, were most widely affected. All the companies in this size bracket that had sought new finance said its availability had got worse in the last three months. Just over half of large businesses and SMEs said the same.

Looking to the next three months, two-thirds of the very largest firms expect access to new credit to get worse, a similar proportion to the previous month. However, large firms and SMEs were slightly less negative about the next three months than they had been in January. In February, 27 per cent of large firms expect conditions to worsen (compared with 56 per cent in January) and for SMEs it was 48 per cent (compared with 58 per cent).

Other key findings include:

•    The number of very large firms and SMEs reporting jobs were lost due to the credit crunch in the last three months was up in this survey, while the figure for large firms was down slightly.

•    Large firms' capital investment was slightly less affected by credit conditions than it was in January, while for very large firms it was slightly more adversely affected, and SMEs were just as affected as before.

•    Output in very large firms and SMEs was more affected in the last three months by the credit crunch than it was in January, whereas output in large firms was less affected.

Ian McCafferty concluded: “With traditional credit channels still constrained, it is time for the Bank to switch the focus of its actions on monetary policy. Interest rates are already very low, so the conventional policy of cutting rates is running out of road and unlikely to have much impact on either the cost or amount of credit available. A symbolic cut may help support confidence, but more direct action is now required to push money into the economy - directly supporting money supply and lending growth. We strongly hope that the Bank will make its plans clear in its statement on Thursday.”

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