Where next for the UK economy?

With the banking crisis starting to hit the real economy, business leaders and analysts give us their outlook for the months ahead.

Not as bad as past recessions: John Hawksworth, head of macroeconomics, PricewaterhouseCoopers

Until a few weeks ago, a lot of people thought the recession would be mild or relatively short-lived. Now, there are clearly risks something nastier could happen. We are probably going to see a prolonged period, maybe two years, where the banking system attempts to retrench. Growing businesses will find it tougher to get credit, and when they roll over their banking arrangements they may find terms have got tighter. We’re expecting a slowdown in consumer spending growth, which has been a major factor driving the economy, to near zero next year in real terms. However, we’re hoping that interest rate cuts will help the economy to start growing again by 2010, and we don’t expect to see as many insolvencies as in the early 1990s.

A mixed picture: Alwyn Welch, CEO, Parity (IT services company)

We started to see things get tighter around Easter, but in the past three or four months they’ve got a lot tighter. Unusually, our [IT] recruitment business, which serves the public sector, is doing very well. But we’re seeing a very volatile market in our training business. People aren’t making dramatic cost cuts, but they’re delaying spending, then rushing to catch up. Our overall turnover is forecast to be slightly lower this year at £150 million. In response to the downturn we’ve made tough decisions on people, and shut two offices where we’ve been able to consolidate. We’ve also engaged a PR firm and invested in a stronger sales team – surviving a recession is about addressing the top line as well as cutting costs.

A glut of opportunities: Jamie Constable, CEO, RCapital (turnaround investor)

In the past three months we’ve seen a massive increase in companies seeking turnaround investment. Certain industries were hit early – most obviously, construction; now retail is suffering, and companies that supply retailers will follow. One of the main reasons companies are in trouble is that they have a lot of debt in them, so if turnover falls ten to 15 per cent, they can’t cut costs quickly enough to cope. For a long time banks have been comfortable lending at six, seven or eight times EBITDA; now, if you can persuade the bank to lend you money it’ll be at two times EBITDA. Any cash-negative business has a serious concern, but if you’re receiving money for goods 60 days before you pay your supplier, you should be in good shape.

A scary time to start a business: Martin Warner, founder, TalkBizNow

We launched our professional networking website on August 18 in San Francisco and London. I’d be really scared if we hadn’t already raised enough money to get through two years. We’ve been through three funding rounds, the second and third of which brought in venture money. Between the second, six months ago, and the third, two months ago, I saw a huge difference: there was a much greater degree of caution on the third round, with our investors taking much longer to make decisions. Some told us, ‘We don’t know how we’re likely to position the company in future because we’re still funding our existing investments’. A lot of VCs have enormous wealth and impressive connections but even they’re finding it hard to use their relationships to leverage themselves.

Click here for a perspective on how things might change for regulated institutions.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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