It is virtually impossible to pick up a newspaper these days without reading
about the recession. Depending on which daily you read, it is either the worst
slump since the war, the greatest downturn since records began, or the nearest
the UK economy has come to total meltdown. Possibly even all three.

Though the facts are indisputable ­ after all, we’ve “achieved” the
definition of a recession, two or more consecutive quarters of declining GDP ­
anecdotal evidence suggests that many of the knock-on effects haven’t yet been

The business recovery departments of the mid-tier firms ­ usually a barometer
of how hard a recession has bitten ­ are reporting that they are “busy but not
as busy as you might think”.

The same departments in the Big Four are buoyed by a handful of high-profile
cases, such as Lehman Brothers. Without those clients, it is uncertain that they
would be any busier than usual.

Banks are reportedly so over-run with potential insolvent customers, so
under-staffed to handle the would-be action against them, and so fearful of the
publicity backlash from instigating action, that they are having to let covenant
breaches and possible action against those customers “ride” for now.

Even where cases do reach the desks of insolvency practitioners, there are so
few assets in the cash-strapped companies that they simply end up being “put to
sleep” rather than revitalised. More likely, the assets which are in those
companies are of questionable and ever-decreasing value, with fewer would-be
buyers for them.

Potential investors (private equity houses among them) are keeping their
hands in their pockets. The returns to them of keeping cash in the bank may be
paltry, but at least they have a plus-sign in front of them. Put your money into
an ailing business and your returns are very likely to start with a minus-sign.

“Deal churn” is on hold. Private equity houses can’t sell their investments ­
even at a low price, another sign that the recession is a Bank of England
statistic rather than a reality ­ so they won’t invest in new deals. And bankers
aren’t lending, so buy-outs and other deals, at prices which might show that
there’s a recession, remain off the radar.

Dennis Turner, chief economist of HSBC, thinks that statistics soon-to-be
published will show that we have just exited a quarter without a decline in GDP,
meaning that technically the recession is over, but plenty of people are still
waiting for evidence that it has even started.

Simon Walters is managing director of FD Solutions

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