Falling confidence among SMEs supports evidence of L-shaped recession

Latest insolvency figures and falling confidence among SMEs suggest the UK is in an L-shaped recession, report K2 Business Rescue.

Recently released insolvency figures show relatively little change year on year, suggesting that the debate about whether the recession would be a V-, U-, W-, or an L-shape is now over.

Business doctor Tony Groom argues that four years after the economy collapsed the evidence is piling up that it is flatlining having not risen off the bottom of the decline.

Whatever the technical definition for coming out of recession may be (i.e two successive quarters of growth), he says, a growth of 0.2% for the UK economy means it continues to bump along the bottom of an L-shaped economic decline, whether it is called a recession or not.

Had the recent decline followed the pattern of previous ones we should have seen a fairly sharp three-year V-shape, and the numbers of insolvent companies would by now be climbing noticeably, as they are generally held to do when an economy is on the road to recovery.

An increase in compulsory liquidations and Creditors' Voluntary Liquidations of 0.1% on the previous quarter and of 6.5% on the same period last year is a relatively small jump, not the dramatic rise that would be expected at the start of a recovery.

Add to this the evidence in the latest CBI quarterly survey showing a sharp decline in confidence among small and medium sized businesses.

They reported that domestic orders remained flat over the third quarter and that export orders had dropped by 8%. They expected domestic orders to fall by another 4% in the final quarter and no growth in exports and were indicating intentions of reducing their stock holdings.

As in the previous CBI quarterly survey firms were still planning to spend 20% less on buildings and 9% less on plant and machinery relative to the previous twelve months. 

Investment intentions for plant and machinery particularly have remained negative for the second consecutive quarter - hardly suggestive of any optimism there.....read more

Source: Millie Dyson | MyIntroducer |  http://www.myintroducer.com