Angels Den Blog

When the media starts acting like a Yorkshire terrier with a juicy bone you know that something’s up. Every time you turn on the TV at the moment you’re bombarded with news of the latest retail giant to go into administration, and then of course reminded again and again about the others that have fallen in recent times. Household names seem to be dropping like proverbial flies, and what’s even worse is that there seems to be little New Year cheer – the experts believe it’s going to get worse before it gets better as business investment is set to crash in 2009.

The Centre for Economic and Business Research (CEBR) predicts that not only are there likely to be other high street casualties of the recession, but business investment is likely to fall by between 15 and 33%. Business investment may be less visible than the closure of chains of retail outlets, but it is no less damaging to the future of the British economy. All businesses invest in new equipment, software, technology and services either to keep up with the times or their competition, or to develop their infrastructure to compete for a greater market share. With the recession in full swing many companies have decided to ride out the storm by battening down the hatches and hoping for the best. But by cutting down on business investment they may be making savings today which could hurt them and the economy in the future. Businesses are pinning their hopes on a short-lived recession, but what would happen if it turned out to be longer than expected? Put simply – by cutting back on business investment companies will be reducing their supplier orders, potentially putting these companies in a graver condition than before. The knock-on effect could be more redundancies that could perpetuate the economic lean times for everyone. Of course the other inevitable result of cutting back on business investment is that ageing assets that would previously have been upgraded or replaced are more likely to fail, with perhaps devastating effects on the business. It’s all rather fragile, really.

One sliver of good news is that with the pound falling faster than Christmas spirit on the high street those businesses that rely on exporting their goods and services will become increasingly competitive in the global market. Of course, the bad news is that with the recession being very much a global issue there really is not a great market for any international trade at the moment. So bad has it become that even countries or companies that are weathering the crisis well are starting to be hit by the fact that there is a shrinking market for their products as more and more people cut back on everything but essentials. This alone has been the reason for some companies to reduce production or ask their employees to work shorter weeks. There’s very little point in making what simply cannot be sold.

So what can be done about all this doom and gloom? Well, the Government’s £25bn fiscal stimulus has been unanimously proclaimed a bit of a damp squib as it seems to have done little to help confidence in the market, and even though it has been obvious for some time now that we were headed for rough waters, no contingency plan seems to have been put in place.

The recession is deepening, and it is likely that there will be further redundancies and retail chain closures in the New Year and throughout the springtime, so maybe battening down the hatches on business investment is not such a bad idea after all. Maybe the squirrels have got it right: store enough to last out the cold and hope the winter’s not too long…then again, even the British squirrel came a cropper when its European cousin came to visit and decided to stay!

Source:
Gloomy forecast for UK in 2009

Image © James Byrum