Recession is nearly over but recovery is fragile, says IMF

The world economy is "on the verge of recovery", having experienced its first decline since the end of the Second World War, according to the International Monetary Fund.

"The advanced economies, hit particularly hard by financial crises and the collapse in world trade, are showing signs of stabilisation, driven mainly by an unprecedented public policy response," the IMF said in its latest World Economic Outlook report.

Read more: http://www.independent.co.uk/news/business/news/recession-is-nearly-over-but-recovery-is-fragile-says-imf-1796339.html

Source: The Independent
Author: Sean O'Grady, Economics Editor

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Contraction of UK economy revised

The Office for National Statistics (ONS) has revised the figure for the rate of contraction in the UK economy in the second quarter of the year downwards.

The ONS originally reported that Gross domestic product (GDP) declined 0.8% in the second quarter of the year, but this has been reduced to 0.6%.

"There is some good news in the mass of UK data released today, but generally the figures highlight the fragility of the economic recovery," said Vicky Redwood, an economist at Capital Economics.

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Small firms adapting to downturn

Over 70% of small businesses in the UK have developed creative solutions to strengthen their company during the recession, according to research commissioned by the Department for Business, Innovation and Skills.

The study shows that 77% of small companies have adapted their business to cope with the downturn with 26% adjusting working hours, 33% investing in additional staff training and rewards and 65% exploring new product areas.

Just under 50% of respondents that made changes to their business did so to take a pro-active approach to the challenging economic climate and 37% said it was so they were ready to capitalise on the economic upturn when it occurs.

"In the face of a global downturn small businesses have developed and applied practical changes to get the best out of their people and enhance their business," said Lord Young, Minister for Employment Relations.

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UK businesses confident over future

Over 70% of businesses describe their attitude towards the UK economy as either hopeful or excited, according to new research from Barclays Bank.

The Connecting Business survey found that 57% of respondents characterised their outlook towards the economy as ‘hopeful' and 17% described their attitude as ‘excited.'

15% of respondents believe that their firm will move back into sustained growth in the next six months, with 28% thinking this will occur in six to twelve months.

"Confidence is key to recovery and the results of this survey demonstrate a real and growing confidence in UK businesses," said Ian Stuart, Managing Director of Barclays Commercial Bank.

"The past 18 months have provided an extremely testing environment for many organisations; however, after evolving to meet the challenges of this new commercial landscape we are now seeing the beginnings of a renewed drive for growth."

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Realise your international potential - read the Economists Intelligence Unit's report on global trade

Even in a global downturn, there are still profitable opportunities in international trade. Smart organisations will look to take full advantage of their global trade potential - to consolidate their competitive position.

In our latest report, 'Exploring the Changing Global Landscape for UK Companies', the respected Economist Intelligence Unit provides expert analysis and commentary on the changing global environment. The report looks at the latest trends in the world economy and how they are impacting on UK businesses. It also identifies sectors and geographic markets where growth potential lies.

Whatever the scope of your international operation - import/export, outsourcing, strategic alliance building or acquisition - this report will provide you with invaluable, authoritative analysis. As part of our commitment to helping you maximise your global trade potential, we're pleased to offer you a free copy - http://globaltrade.rbs.co.uk/.

Source: RBS

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The number of new foreign investments in British companies increased by 11% last year, despite the onset of the global economic downturn

Businesses from 53 different countries - the largest variety ever in a single year - invested in UK firms in 2008, maintaining the UK's position as Europe's number one investment destination.

With office rates decreasing, the pound falling against the dollar and a wider talent pool than ever before immediately available due to job losses, foreign companies have seen the recession as a great time to invest in the UK.

"At a time when companies across the world are tightening their belts and focusing their investment in the sectors and countries where it will bring the most benefit, these results are testament to the fundamental strengths of the UK’s economy,” said Business Secretary Lord Mandelson.

Source: UKTI

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The worst of the recession is behind us and the economy is now stabilising, the CBI has claimed.

However, the business group said the UK will not return to growth until the beginning of next year.

The prediction comes hot on the heels of last week’s claim by the National Institute of Economic and Social Research (NIESR) that the economy actually grew in April and May.

According to CBI predications, GDP will flatten out during the second half of this year, with figures of -0.1% and 0% in the third and fourth quarters of the year.

Richard Lambert, CBI director general said: “The world recession has deepened, so it is not surprising that the UK economy has continued to suffer. However, the harshest period of the recession looks to be behind us, the economy is stabilising and this should continue during the second half of this year.

“The return to growth is likely to be a slow and gradual one; difficult credit conditions are still affecting business behaviour. For positive growth to return, lenders need to feel more confident so that credit can start flowing again.”

Lambert warned against getting ‘carried away’ by indicators of recovery, insisting it would take some time before any green shoots had a real impact.

The group estimates that the UK economy will have shrunk by a total of 4.8% by the end of the recession.

Source: © Crimson Business Ltd. 2009

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Business confidence in the UK rose for a third consecutive month in May...

...to its highest level in nearly a year, according to the latest Lloyds TSB Business Barometer.

The survey of more than 200 firms found that 44% expect their business activity to increase during the next 12 months, compared with 35% who stated this in April. Only 16% of respondents expect business activity to decrease, down from 21% who thought this in the previous month.

"While it would be premature to talk of an end to the recession, we should be careful not to overlook the significance of the growing confidence we are witnessing amongst businesses," said Trevor Williams, chief economist at Lloyds TSB Corporate Markets.

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The service sector is still in deep recession, but there are also some signs that sentiment is improving

The latest CBI Service Sector Survey also showed indications that the decline in business activity is starting to slow.

The quarterly research, conducted between 29 April and 13 May, covers 179 service-sector firms. They are divided into Business and Professional Services, such as accountancy, legal and marketing firms, and Consumer Services, including hotels, bars and restaurants, travel and leisure.

In Consumer Services, the volume of business fell over the past three months at the fastest rate since November 2001, but because prices rose, the fall in business values was less marked. In Business and Professional Services, values fell even faster than volumes due to record deflation in average selling prices.
However, in both sectors slower rates of decline in both values and volumes of business are expected in the next three months. If realised, the declines in activity would be the slowest since last summer.

Read more: click here

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UK firms adapt to recession

Short and medium term business confidence has risen simultaneously for the first time in 13 months........

This is according to the latest Business Trends report by accountants and business advisers BDO Stoy Hayward LLP. The modest rise of BDO’s Output and Optimism indices suggests businesses have accepted the realities of the recession and are adapting their plans to manage against the downturn.

Despite this, the labour market picture remains bleak with BDO’s Employment Index dropping from 94.2 in January to 91.7 in February, suggesting a further 320,000 people will be added to the unemployment register over the next three months. However the increases in both the Output and Optimism Index, which predict economic growth, is a tentative sign that the recession has been factored into confidence and business planning and is in stark contrast to the collapse of these indicators since October.

The result also indicates that businesses are taking swift and decisive action to tackle the challenges of the recession, including halting production or implementing new employment strategies to keep costs down. This tactic is further illustrated in the report which reveals that while there has been a reduction in full time employment figures, part time employment actually rose by 33,000 in October – December 2008.

Peter Hemington, Partner at BDO Stoy Hayward, says: “Optimism remains low and businesses expect the economy to continue to contract, but companies are now adapting their business models for an uncertain future. It’s still too early to say if business confidence has hit rock bottom and we’ve already seen a number of false dawns, but this month’s modest increases are encouraging. We must watch carefully to see if this is the start of an upward trend.”

The report’s Optimism Index, which measures business confidence two quarters ahead, rose to 90.5 in February from 89.9 in January. Similarly, the Output Index that measures order book strength and short run turnover expectations in the next quarter edged up to 88.3 in February from 88.1 in January 2009 - a 29 year low.

Source: BDO

Must your business diversify to survive?

As every small business owner will know, the current economic climate is extremely challenging. The UK is in its first recession since the early 1990's, and there is every indication that the situation will remain difficult for at least the rest of the year.

If your business is struggling then you must ask yourself whether you are doing everything possible to survive. What have you done to diversify your business? Are you and your staff putting in longer hours? Have you diversified your business in terms of staff roles, cross-training and what services and products you are offering your customers?

The economic downturn has changed the way that businesses need to operate. This is not the time to carry on operating the same way that your firm was before the recession; you must adapt to the changing conditions.


Read more here: http://www.newbusiness.co.uk/articles/business-continuity/why-you-must-diversify-survive

Recession Insights - Top 10 Critical Business Priorities

1 Provide excellent customer service. We can’t survive without customers, so don’t forget them. Listen and respond to their needs, demonstrate the value you place in them. Review customer and client feedback formally – this will be the litmus test of what you are delivering (and how) and will help to inform positive changes where necessary. Always go the extra mile for your most profitable and loyal customers.

2 Innovate. Develop new unique products and services to distinguish you from the competition. Focus on those that add tangible value or reduce costs for your customers and clients.

3 Invest in people. Offer customer-focused training and reward high performers. The most talented and valuable members of your workforce are those most able to move on during a slowdown. Introduce simple, cost-effective recognition programmes and allow them the flexibility to work where or when they need to.

4 Maintain quality. If you trade on quality, do not cut costs that are visible to the customer in the short term, compromising your reputation in the long term.

5 Reduce debt and manage cashflow. Tighten internal financial procedures immediately and look to secure longer term contracts where possible. The single biggest regret of struggling businesses was that they did this too late, or not at all, which speaks volumes.

6 Respond to the market quickly. Be flexible. Ccapitalise on your size and ability to change direction quickly. Carry out detailed risk assessments on all areas of your business and customer base – identify ‘safe’ areas to focus on.

7 Prioritise marketing. Do not cut budgets or stop advertising as a knee-jerk reaction to challenging trading conditions. The most successful businesses use slowdowns as an opportunity to grow, share and broadcast their message louder than the competition. Crucially, you need to remind your customers that you’re still in business and instil confidence in your existing clients. Slowdowns also offer greater scope for canny businesses to negotiate for favourable deals.

8 Forecasting accurately and plan realistically. Super SMEs tended to have a ‘slowdown plan’ in place. If you haven’t written one, start now. Encourage open and honest communication with your teams on what is realistic. Revisit old order-books to ensure no opportunities are being missed.

9 Know your market. Increase market knowledge and insight. Be seen as the thought-leader in your field and enable your workforce to become experts through sharing information. Use readily available free research online to boost your expertise.

10 Invest in technologies to help your people. The need to work more efficiently has never been higher up the agenda. Invest wisely in IT solutions focused on optimising your workforce productivity, reducing wastage and enabling smarter (not necessarily harder or longer) working.


Extract from: A Guide To Plain Sailing Through The Recession - Plantronic
s - www.plantronics.com.

The full guide can be downloaded here: http://www.sme-guide.co.uk/

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Recession Insights - Winning Behaviour

It is not just lack of investment in technology that characterises under performance in SMEs. Our research found that SMEs are also more likely to have reduced rather than increased training budgets over the past 12 months (37% have reduced training budgets compared to 24% who have increased them).

in a direct reversal, however, we also identified a new breed of 'Super SMEs’ (those that are actually booming through the slowdown) which are more likely to have increased (rather than decreased) training investment (39% have spent more on their training in the past 12 months while 28% reduced their training spend).

Similarly, while overall SME investment in marketing fell in the past 12 months (36% reduced marketing spend while 32% increased it), amongst our Super SMEs, 43% increased their marketing spend, compared to less than one in five who reduced it. There was also a net decrease overall in IT infrastructure spend. 29% spent less on this, while 27% spent more. Amongst Super SMEs 47% spent more on IT infrastructure and just 16% spent less.

The trends remain the same for employee benefits, flexible working and communication technology and new product development. In each instance the general trend amongst SMEs was to reduce spend. However amongst those SMEs which are currently experiencing growth, or have greater confidence in their long-term future, spend was up across the board.


Extract from: A Guide To Plain Sailing Through The Recession - Plantronic
s - www.plantronics.com.

The full guide can be downloaded here: http://www.sme-guide.co.uk/

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Recession Insights - Mobility & IT

One of the more striking findings of the research is that businesses that have invested strongly in IT infrastructure are currently showing the highest levels of performance. In particular, investment in mobility, thus optimising individual productivity in a climate where staffing levels are being reduced, appears to be emblematic of the ability to plan strategically and weather the vagaries of the economy.

Businesses that are fully enabled for remote and mobile working said that they are more than twice as likely to review their business plan on a monthly basis compared to those firms that have enabled none of their staff for mobile working (34% compared to 16%).

In general we found also that SMEs that have fully mobile workforces are 10% less likely to have been hit by the slowdown and are also 60% more likely to forecast turnover growth compared to SMEs that do not enaAble mobile working.

These figures are symptomatic of the fact that SME are all too often overlooking the most valuable asset of all – their employees.

The upshot is that 45% of SMEs do not believe they have equipped their workforce with the technology to reach their full potential. Only 37% of SMEs say that their workforce are fully equipped to work where and when they want, while just 4 out of 10 say that they provide the training and career development to maximise their workforce’s potential.

In a recent survey for communications company Aavaya, 92% of UK workers said they would find it attractive to work for a company that offered flexible working and 78% said they would consider changing jobs for the chance to work flexibly. Without the requisite tools, understanding and investment to thrive or survive, SMEs ignoring these sentiments risk losing their most unique proposition – the human talent that had previously been attracted away from the corporate world to seek a more exciting and fulfilling working life.

Extract from: A Guide To Plain Sailing Through The Recession - Plantronic
s - www.plantronics.com.

The full guide can be downloaded here: http://www.sme-guide.co.uk/

www.ukba.co.uk

Recession Insights - Planning & Strategy

The message is clear. Businesses that review their business plans monthly are most likely to be riding the economic storm. According to our research, they are 42% more likely to be unaffected or booming during the slowdown. Businesses who are confident about the future are also three times more likely to have had a strategy in place for a worsened economic climate than those who fear for their survival.

One in twenty SMEs admitted that they don’t really have a business plan of any description (never mind a revised strategy for a global slowdown) while 17% said that their business plan only gets reviewed and revised once a year. At the root of this problem is the fact that 62% of all SMEs have never had to face a slowdown before. They never really needed a plan when times were good, and never anticipated that they would need one for the future. Six out of ten SMEs did not have a plan or strategy in place for a worsened economic climate.

A worrying trend for the wider economy, and indeed the future, is that the ‘young guns’ who have thrived for the past decade or more through good economic conditions were least likely to have put a strategy in place for bleaker times. Two thirds did not have a plan ready for harsher times, compared to 40% of 55 year olds, who by virtue of their age and experience, have seen something similar (if even vaguely) before. The younger working nation have much to learn from mentors of previous slowdowns and recession.


Extract from: A Guide To Plain Sailing Through The Recession - Plantronics - www.plantronics.com.

The full guide can be downloaded here: http://www.sme-guide.co.uk/

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Recession - Who Is Riding The Storm?

The research pinpoints the types of businesses more likely to be riding the storm rather than being swamped by the waves. So who is riding the storm?

• SMEs with mobile workforces – they are 10% less likely to have been hit by the slowdown
• SMEs with older, more experienced ‘captains’ – more than half of directors/owners aged over 55 are unconcerned about long term survival while just 31% of 35-44 year olds share this confidence
• SMEs who had a ‘worst case scenario’ strategy in place – confident, booming businesses were three times more likely to have had this in place
• SMEs investing more in training, IT & Telecoms, marketing - all are more likely to be riding the storm
• SMEs with a woman at the helm – female-run businesses are 30% more likely to be riding the storm

Extract from: A Guide To Plain Sailing Through The Recession - Plantronics - www.plantronics.com.

The full guide can be downloaded here: http://www.sme-guide.co.uk/

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The Stark Reality

There is little point in denying that reality is biting for the majority. Our research shows that 79% of all SMEs have felt negative impacts for their business as a result of the current economic slowdown, with almost one quarter (22%) citing that impact as ‘significant’. In the construction industry, perhaps the hardest hit of all, 47% say they have experienced significant negative impacts (six out of ten have seen turnover fall in the last six months) and just one in ten remain unaffected by the slowdown. A startling three out of ten trading currently have serious concerns that they will not be trading by Autumn 2009. 7% believe they may not even last beyond the Spring.

Construction, retail and catering are also expecting to see the biggest decreases in staffing levels over the next six months. More than half of businesses in these sectors expect to see staff levels reduce. The slowdown is not restricted to these ‘worst affected’ sectors however; 43% of all expect to reduce headcount over the next six months. Likewise, 6 out of 10 expect to see a reduction in financial turnover in the next six months, with just 21% expecting to see increases. 67% also expect to see their cashflow weakened in the next six months. In all, just 16% of say that they have not felt any ill-effects of the slowdown, whilst one in twenty businesses say that they are actually booming.


Extract from: A Guide To Plain Sailing Through The Recession - Plantronics - www.plantronics.com.

The full guide can be downloaded here: http://www.sme-guide.co.uk/

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Survive the Downturn - Manage Risk and Uncertainty

Extract from ICAEW report: 8 Ways To Survive The Downturn

Find out how identifying and managing risks to your business can help you survive the downturn.

Business risks have changed dramatically as companies of all sizes find themselves caught in supply chains facing global market volatility and uncertainty over the availability of finance.


Undertake a rigorous and honest appraisal

Now is the time to undertake a rigorous and honest appraisal of the risks facing your business and ensure your risk management systems and controls are up to scratch.

* What are the main risks facing your business now and in the future? How have these changed?
* What is the impact of these risks on your plans to grow and finance the business?
* Is your business sensitive to currency fluctuations?
* What is the impact of loss of turnover? Is the business showing signs of under-performance?
* If borrowing becomes more difficult or more expensive, how will this affect your finances?
* How will you maintain the confidence of your key stakeholders – investors, shareholders, customers and staff?
* Have your or your suppliers’ credit ratings been affected?
* Can your business meet its pension fund obligations?
* Are you exposed to any bad debts?


Maintain the confidence of your key stakeholders

It’s important at this time to maintain the confidence of your key stakeholders, whether they are major customers, suppliers, the banks, audit committees or shareholders.

Managing information during this period will be critical to maintain confidence and avoid nasty surprises – remember the internet can undo good news in seconds.

Be aware that shareholders’ expectations may have changed or may change during a period of uncertainty. They will want to know that you have challenged your assumptions, have confidence in your forecasts and have plans in place to respond and adapt quickly to unexpected changes in the market.

Audit committees and shareholders will want to be confident that you have financial and risk management systems in place to manage through the recession.

Source ICAEW - full report can be downloaded by clicking here.

Managing your cashflow

‘Cash is king’. It is a cliché – and like many clichés it is true. The reason why most businesses fail is that they run out of cash to pay their bills. They run out of cash because they have failed to keep on top of cashflow.

To keep in control of cashflow businesses need to have the right management information and systems in place – and to act on warning signs before they become problems.

Of course all businesses have systems in place. It is just that in an economic downturn these may need to be tightened, particularly as 8 in 10 businesses say they are seeing an increase in the number of their customers paying late.

Remember being paid – and paid on time – is not a given

• If you are worried about the customer paying on time – or at all – consider stage payments or even cash on delivery to reduce your risk of bad debts
• Set your terms of business before doing business – and put them in writing. You will not be paid in 30 days unless your customers know that’s what you expect
• Do credit checks before doing business – and monitor late payments. If companies are taking longer and longer to pay, find out if there is a problem. Do not wait until they leave you with a bad debt
• Encourage prompt payment. Consider charging interest on late payments (your legal right on debts outstanding after 30 days) or – if your profit margins allow – offering a discount for prompt payment
• Invoice promptly – and once again make payment terms clear
• Check the customer is happy – there may often be a reason for late or non payment. Never give a customer a reason not to pay
• Make it easy for them to pay by offering as many ways of getting paid as you can. BACS payments are fast and attract lower bank charges. Or a standing order can be used if they pay the same amount regularly. With cheques your late payers can always use the excuse “it’s in the post”
• Contact customers to check they received the invoice and then find out when they are going to pay


“The key thing is certainty – knowing when you are going to get paid so that you can adjust your cashflow forecasts accordingly. If you know a customer is going to take 75 days to pay, you can plan ahead. If you expect payment with 30 days and the payment takes 75 days your business risks running out of cash to pay its outgoings – and that is when businesses run into difficulties.”
Phillip King, Director General, Institute of Credit Management.


Smart credit management is…
• Ringing on day 40 to check you will be paid on day 60

Lax credit management is…
• Waiting until day 65 to ask why you were not paid on day 60

Getting it right
• Many businesses concentrate on getting orders in, but getting paid should also be a priority

Communication is key

• At times like this you need to cement your key relationships with customers – as well as your suppliers and your bank – as this could be vital to the survival of your business. It is not just about keeping customers happy. It is about working together and understanding their needs. Good communication will also help you to find out if
they are having problems that could impact on your business.


[Extract from Trading Through The Economic Downturn - published by NatWest - full Guide available by clicking here]

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