Interest rate cut could help increase company optimism in 2008

7 January, 2008

The Business Trends Index from BDO Stoy Hayward, which measures firms’ optimism for the three months ahead, slipped in December for the fourth consecutive month.

A report from Lloyds TSB found that companies are less confident than at any time since 2003 – with just one in three expressing any confidence.

Accountants Grant Thornton warned against firms talking themselves into a recession, having also discovered growing pessimism amongst companies for 2008.

Many analysts believe that confidence in the economy could be restored by an interest rate cut when the Bank of England’s rate setting Monetary Policy Committee meets later this week.

Manufacturers’ organisation, EEF believes the Bank of England should cut rates again following the significant weakening of activity indicators and a poorer international outlook. Tighter credit conditions for the consumer and business, as well as a clearer slowdown in the housing market are also impacting on consumer confidence.

Steve Radley, chief economist, EEF, explained: “The evidence from the past month points to a growing risk of a weaker economy at home and abroad. While manufacturing has been in good shape, it would not be able to escape the negative effects of a downturn in domestic and export markets. The Bank therefore needs to act quickly to offset the impact of deteriorating financial conditions on the UK economy.”

While most agree a cut in the cost of borrowing would go a long way to restoring confidence, Alysoun Stewart, head of Grant Thornton’s strategic services group, said that if American bosses had reason to be cheerful, the UK’s should too.

She said: “The US is currently experiencing a greater fallout from the credit crunch than the UK, yet businesses there are more confident about the year ahead than we are.

“If the US can be positive about withstanding the effects of the credit crunch, then so can we.”