Regions in recession: is the worst over?

At the height of the downturn nearly two years ago, when the City and London-based media were accused of inflating the situation, the UK200Group of accountants and lawyers, with members throughout the regions, carried out its own snapshot checks to assess the severity of the crisis.

Officially Britain’s economy pulled out of recession at the end of 2009, but has the situation facing independent practices and their SME clients really improved? Are firms around the country less worried about rising costs, less spending power and lack of finance from banks?

SOUTH EAST

The region is renowned for its many small and medium-sized businesses, but also for many leading firms in such sectors as pharmaceuticals, biotech, healthcare and hi-tech, environmental technology, aerospace and electronics – Britain’s main export sectors. In 2008, the combined effect of the credit crunch and rising inflation caused a progressive squeeze on sales and margins.

“Retailers began to see a dramatic slowdown in revenue,” says Jonathan Russell, partner at Oxfordshire-based Rees Russell and vice president of the UK200Group. “The building industry was being decimated. The government ploughed a lot of money into the economy, but this hasn’t helped small businesses. Firms generally are still worried about the economy. Banks are still not lending.”

SOUTH WEST

Unemployment remains a worry, banks are still reluctant to lend, rising rates are a barrier for start-ups and there is nervousness about what will happen under a new government. The region is managing an investment of £230m of European Union funds across all parts of South West England and Plymouth’s position as a global centre of excellence for science, innovation and marine energy research is receiving a major boost with the announcement of a £25m investment plan.
MIDLANDS
Carmakers are turning the corner, the industry is coming out of intensive care, but Midlands industry generally is still struggling, says Matin Smith, senior partner at Dains, the largest independent firm of chartered accountants located and operating in the West Midlands. “We are still busy with insolvency work. Some of our biggest engineering and motor industry-related clients are suffering.

“Banks are still very tight, squeezing existing customers, inflicting higher charges and not lending much. We don't expect overall improvement for another twelve months. People are wary, companies are cutting work hours or offering sabbaticals to avoid losing skilled workers.”

YORKSHIRE

North Yorkshire has suffered less. Tourism has been a major contributor. “More people like going on short trips,” says David Ingall, a former president of the UK200Group and senior partner at JWPCreers, with offices in Selby and York. “This is an area of low cost housing, so people are not on the edge with mortgages, and spending is less tight. I don’t think recovery is in sight for several years, although I find the London media are still over-egging the problems. Businesses here are pumping along. The employment situation is mainly hitting school and university leavers, although I hear corporate finance advisers in Leeds have had to cut back staff.”

NORTH EAST

Business in the region is still very patchy, says Mark Sharpley, partner at Smailes Goldie in Hull. Employment is slightly down and would be more serious, but for an explosion of public sector recruitment. Banks are still very hesitant on lending, except to large businesses with a good track record. The good news is that Nissan chose Sunderland to be the third base for its Leaf model.

Investment from government grants and loans from the European Investment Bank should safeguard the jobs of 2,250 of its 4,000 strong Sunderland workforce.

NORTH WEST

Small businesses are holding on with reduced profits; some accountancy firms have made more layoffs, although those which laid staff off earlier are now str uggling to cope and are recruiting again. Larger companies don’t seem to have relaxed their recruitment freezes, so it is hard for skilled people who have lost their jobs to find alternative employment.

“I view this as an opportunity lost,” says Anne-Marie Naylor, senior partner at Harts in Macclesfield. “Now could be the time to enhance the skills base of businesses. Unemployment looks very likely to increase. Finance is available for the right project, but banks are looking for security and very high margins. Bank support for increased facilities has been good but short-term. Any acquisitions are strategic by larger businesses with a war chest. The construction industry is suffering from a triple whammy – a bumpy residential property market, empty commercial developments and public sector financial restraint.”

WALES

The downturn hit businesses in Wales badly. Consumer spending has been severely hit, building projects have been stalled, with a multiple effect on associated businesses and professional firms. Two years after the crisis erupted, finance is still a major problem. “Banks are just not lending,” says David Challenger, partner at Cardiff-based Watts Gregory. “Many businesses have cash flow problems, but banks will not allow overdrafts. Some of our clients have scaled down or are on short time. In the region generally more projects have been mothballed or put on hold, which affects us too.”

SCOTLAND

The slowdown, which began to hit Scotland two years ago, is now beginning to lead to recovery. Competitive exchange rates have been good for exports and for tourism. The bad news is that, here too, funding is still very difficult. According to Gordon Chalmes, director at Glasgow-based Wylie & Bisset. “There’s little point putting companies into insolvency because few are able to buy up assets, or to buy up any businesses. Sadly, personal insolvencies are growing.”

NORTHERN IRELAND

The slowdown has continued to affect investment and personal spending. The stalling property market hurt estate agents, solicitors and builders, and is now affecting retailers of furniture and furnishings, hardware and DIY, says Bill Miscampbell, partner at W.J. Miscampbell, in County Antrim. “Banks heavily exposed to property earlier are still very tight on lending. This year is going to be harder than 2009.”

Wilf Altman, works with the UK200 Group.

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