Stand by for another tough year.

Stand by for another tough year.

This year hasn't been heralded as one of the best for business and many companies have found themselves coming in well below where they expected to be in terms of financial targets.

The world economy has been heading downwards spectacularly all year, and although UK businesses have been largely shielded from the worst of it, they have not been immune.

Chancellor Gordon Brown’s recent admission that the economy looks likely to only grow about 1.6% this year can’t have taken that many people by surprise, even though it was well below previous forecasts.

Profits have been down virtually across the board, which has been reflected in stock market prices.

The FTSE-100 spent most of the year in what seemed like a terminal decline and only since around September did it begin to show any signs of recovery.

Technology stocks in particular have continued to suffer from incredibly low prices and although it seems unlikely they will recover to their former glories any time soon, they must still be rated as hugely undervalued in many cases.

Accountancy stocks have suffered worse than most as well. On top of a stumbling economy the sector has had to deal with some of the worst scandals to hit any industry in living memory. This has had a severely damaging effect on almost all the companies working in or around this market.

One look at the Accountancy Age/ ADVFN index will show you that it also was in a steep decline until around October and is now slowly creeping its way upwards – although again it looks like it will be some time before it reaches its previous highest point.

The fallout from Enron has had far-reaching consequences on many firms throughout 2002. The scandals have meant the scrutiny of accounts has been closer than ever. This has led to many more companies than normal restating accounts in order to avoid a similar fate or upset investors.

New standards, like FRS17, have also meant that accounts have become more volatile than in the past, and in a slowing economy this has made some accounts look much worse than they normally would have done.

So will things get any better in 2003? Gordon Brown seems to think so.

He’s pencilled in a growth rate of 2.5% to 3% for next year.

However, the situation is not so clear cut for many businesses in the UK. A recent report by Continental Research has found that over half of large UK businesses are now more pessimistic about the economy than they were just three months ago.

This situation is worse for the 34,000 companies that have an annual turnover of more than £5m as they are more affected by global changes.

By comparison in the survey only 35% of small companies felt more pessimistic and 28% of medium-sized businesses felt things were going to get worse.

Colin Shaddick, director of Continental Research, said: ‘There are (also) clear differences by sector. Those in the manufacturing sector are less confident about their sector with over a quarter thinking they are in recession. Those in retail are slightly more positive, perhaps reflecting the continuing high levels of consumer spending.’

Whether this confidence will remain post-Christmas is another matter.

Several analysts are predicting that consumer spending will drop, and may not recover from this traditionally slow part of the year.

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