Double-dip Recession - What does it mean for small businesses?

Marketing Executive
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This week the UK’s Gross Domestic Product (GDP) figures were released by the Office for National Statistics (ONS). They showed that the economy had shrunk unexpectedly by 0.2% in the first quarter of 2012, technically plunging the UK economy into a double-dip recession (a serious problem, despite the fact that it sounds like a 1980s sherbet-based sweet). The economy is deemed to have double-dipped when there have been two consecutive periods of negative growth, in this case the recent figures followed on from Quarter 4 2011’s 0.3% retraction in GDP.

What was revelatory was that economists had predicted the ONS data to show a growth of 0.1% in January through March. This was a picture painted by a number of surveys. The Chancellor of the Exchequer, George Osborne commented: “It’s a very tough economic situation. It’s taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime.”

Breaking down the figures we see a prevalent weakness throughout the economy. Construction output was hit hard, falling sharply by 3%. The industrial sector shrank by 0.4%, while the services sector, which accounts for three quarters of the UK economy, grew by just 0.1%.

The ONS’ chief economist, Joe Grice said: “We have no reason to suspect that these figures are any less reliable than usual.” He said however that the first estimate of GDP should come with "a health warning" attached, because it was based on just 40% of the data the ONS will ultimately collect for the first quarter. We could perhaps then see a revision of the figures in a month’s time.

So what do these revelations mean for the small business? The treasury will point to the bigger picture, that conditions will ease in the future. It can’t be denied however that the recession will sap confidence, deterring businesses from investing, costing growth and jobs. As has been mentioned countless times already, SMEs are struggling to access working capital to fund their ventures. This is particularly down to long payment terms that blue-chip companies enforce on their small business creditors.

The recent Bank of England report released earlier this week shows negative growth for SMEs. The data released includes a three-year report showing that lending fell sharply from early 2008 and has actually weakened even further since mid-2009. The Bank of England chart shows that lending growth has been negative for all SMEs since late 2009.

Invoice finance, crowdfunding and peer-to-peer lending in the UK are becoming a serious alternative to bank finance, particularly in lieu of the data released by the Bank of England. Government recognition in the Breedon Report and the Chancellor’s Budget are also big factors in ensuring that alternative working capital finance stays in the public consciousness.

The ray of hope is that the figures will be moderated at the end of the month giving us a fuller picture of the UK’s GDP in the first three months of 2012.

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