ECONOMICS

UK - Economic Recession



UK - Economic Recession

Introduction

The current economic crisis has broken the temporary solutions which have ruled the world economy. Profits had been created through production but, in contradiction, were realised through circulation and exchange. British is now exceptionally vulnerable to the crisis. The business funding debate has become polarised around a perception that the banks are not lending. The UK banks insist that they are in fact totally open for business. This divergence is explainable through a number of factors, not least that business demand for loans is depressed by ongoing recession and an unwillingness to invest against very uncertain growth prospects. [1] Many businesses have by now failed outright or downsized into more survivable shapes. The government, consciously or unconsciously, finds it easy to divert attention from our frighteningly fragile economy by commenting on easy targets: the banks; the Eurozone; the unions. The banks, because of the bail-outs and their reliance on government for permissive regulatory relationships, feel themselves greatly constrained on any public commentary they can make regarding the full story. The invoice discounting sector has been doing counter-cyclically well: too much money is being committed to invoice discounting as reliance on overdrafts and loans retrenches. There is a strong case to be made that much of our SME base is frequently commercial-lending/product heavy and equity underweight. Hence, on a more macro-level, the recession has highlighted this chronic under-funding and the over-reliance on banking products. I have for a long time been considering the differences between good businesses which are the potential recipients of venture capital and those that are not. However one attempts to establish a terminology carries the risk of belittling the latter category. However, companies which are traditionally not within venture capitalists' radar in fact form a much higher component of our economy than those which do. Hence I have elected to designate the two groups VC-companies and Non-VC companies, relying on a definition which is narrow but which is also non-derogatory.

These things really matter: they help accurately define the nature of the UK's “funding gap” and they identify where fresh thinking is required within the creation of capital flows.

In the first instance, there are in fact three funding gaps - but there is little funding gap at all in the sense that it is traditionally understood. This traditional understanding is that there is a lack of investment capital directed at exciting, high growth potential businesses.[2]

In a general sense this is simply not so; there is a mountain of capital aimed towards high growth opportunities. However, there are some rarely analysed issues surrounding this resource.

Four years ago UK banks were the second most profitable in the world, outclassed only by their US rivals. But with British banks' profits now 58pc off this 2007 peak, the sector now languishes in fifth place, having been overtaken by Chinese, French and Japanese counterparts, The Banker magazine reported.

The UK sector faces a "Herculean" task to regain its former position and may not succeed, warned Brian ...