The MIA is a member of the CBI on behalf of MIA’s UK membership and we work with them on various aspects of Government lobbying. The following are relevant extracts from a recent letter to all CBI members....
In big picture terms, the drive to get credit flowing through the UK economy again is beginning to gain traction. The Asset Protection Scheme is now under way, with the announcement of agreed guarantee terms between the Royal Bank of Scotland, Lloyds and the Treasury. This should eventually free up significant sums of bank capital and allow lending to rise at a faster rate than would otherwise have been possible.
Elsewhere, the Bank of England has started to buy commercial paper, although not much progress seems to have been made on the plans for it to purchase syndicated loans and corporate bonds. The other core element of the Government’s January package – guarantees for the issue of asset-backed securities – is currently scheduled to begin in April, and may help to reopen the wholesale markets.
All this will take time to flow through into the economy. Meanwhile lending margins have risen dramatically – by a factor of five from their low point, according to the Association of Corporate Treasurers.
But taken together, these measures should in the months ahead start to plug the gap left by the withdrawal of foreign banks and non-bank institutions from the UK marketplace.
Progress at a more micro level has been disappointing. It’s true that the mortgage market should benefit from the decision to throw Northern Rock’s recent policy into reverse, and start expanding its loan book again.
But the motor manufacturers are still waiting for help – on wholesale vehicle finance, EIB loans, scrappage and labour support. Moreover, the most significant components of the Department of Business’s package for small and medium sized companies have been delayed. This is the £10billion working capital scheme to support £20billion of new lending. Intended to be “operational from March 1”, it’s still somewhere out there on the horizon.
As export driven businesses will have a critical role to play in helping to pull us through this recession we are still waiting to see a more proactive Export Credit Guarantee Department. Government announced a £1 billion facility for smaller exporters last November but it got wrapped up in the broader working capital scheme which is still being discussed.
We are taking every opportunity to press the government for action on all these fronts.
Looking at the overall economy, the main downward pressure in the last six months has come from rapidly declining business investment and a wave of stock liquidation as businesses everywhere have been seeking to turn their working capital into cash.
Our surveys indicate that business investment will remain very weak for some time to come. But stock liquidation should have less of an impact as time passes. And in the second half of this year, we should feel some impact from the massive monetary stimulus coming from the big cuts in bank rate and the devaluation of sterling.
That’s why our latest forecast suggests that after a torrid first quarter, the pace of decline in the succeeding quarters will decelerate, with a modest recovery starting to be felt by the Spring of 2010.
Obviously this is a period of extreme uncertainty. We are determined to do everything we can to support our members through these difficult times.
Richard Lambert, CBI D-G.
To read a recent TimesOnline article by Richard Lambert, please click here.