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The future is uncertain for SMEs

18 / 12 / 2012
It is difficult to judge what 2012 holds for Britain's small and medium sized enterprises (SMEs).
Even Sir Mervyn King, the Bank of England governor, is uncertain of how the future of the economy will play out.

He has predicted that it will "zig zag" and be characterised by a series of lows and gains, following its January contraction of 0.2 per cent.

The recent unemployment figures paint a gloomy picture of the state of the UK and some experts believe that this is going to worsen.

Unemployment has remained relatively flat in the last few months, but it is still at a 17-year high of 2.67 million.

According to the Chartered Institute for Personnel and Development, this could reach as high as 2.85 million if the situation does not improve.

Furthermore, the CIPD also predicts more redundancies to follow within the first few months of 2012.

SMEs are perhaps more vulnerable, as they often cannot afford to retain in the same way that larger corporations can.

What's more, tight credit conditions are taking their toll on these micro firms.

According to the British Banker's Association, net lending to non-financial companies fell by £2.8 billion in January, following a drop of £2.2 billion in December.

Financial concerns related to the wider economic mood, as well as personal finances, appears to be deterring smaller companies from borrowing.

It is such a serious problem that the Federation of Small Businesses (FSB) has even called on the government to promote alternative forms of finance, such as peer to peer lending models, and open up its own investor account to give the sector a boost.

FSB national chairman John Walker also thinks that the government should look at overseas businesses for guidance.

"It is only when you compare bank lending in the UK to the situation in countries like Germany and the US that you can see the extent to which our banking system fails to deliver what small businesses need.

"Too much time has been spent tinkering with the existing system when it is perfectly clear that we need to develop alternative routes to finance," he said.

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