Firms report the availability of credit continues to deteriorate and they expect credit conditions to remain difficult over the next three months, according to latest CBI research, was published today (Tuesday).
The MIA is a member of the CBI which is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce.
Conducted in February, the second monthly CBI Access to Finance Survey found almost 60% of firms, who sought new or renewed finance lines, said its availability had deteriorated in the last three months, 41% had seen no change and no firms saw an improvement - giving a balance of -59%.This means conditions continue to worsen at a similar pace to those reported in January, when the balance was -62%.
Ian McCafferty, the CBI's Chief Economic Adviser said: "Significant UK 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."
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% compared with January's -58%).
Two in five firms (40%) say they have cut staff numbers over the past three months as a result of the credit crunch, and staff in many firms are working fewer hours, and there was evidence of cut backs on training.
For the second month, the very largest firms employing over 5000 staff, were most widely affected. 100% of companies of this “very large” size, that had sought new finance, said its availability had worsened in the last three months - 52% of large businesses and 54% of SMEs said the same.
Looking to the next three months, there is a widely held view that access to new credit will get worse. Just over a quarter reported the cost of their existing finance rising and now, nearly the same proportion said new borrowing costs were pegged to LIBOR rather than the bank rate.
There is some evidence that the recent cuts in interest rates are feeding through, however. More firms reported that the cost of new credit lines had come down by and fewer firms, overall, said they were facing more expensive new finance .
There are still problems with the availability of trade credit insurance. 43% of firms surveyed use credit insurance to cover the supply of goods, and of these two-thirds say its availability has worsened in the last three months. This hinders their ability to secure contracts and supply customers.
74% saw a deterioration in the credit limit insured, and a greater proportion report that they can insure fewer customers insured and at higher cost.
Ian McCafferty concluded: "A symbolic rate 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.."
For the Access to Finance Survey February 2009 Executive Summary, please click here
