Eurozone and interest rate uncertainty hold back business investment

Businesses remain reluctant to invest as they remain gripped by concerns over the struggling eurozone and the prospect of interest rate rises, with companies sitting on ever-growing cash piles and shunning bank lending, Britain’s accounting body has warned.

The body implored small businesses to seek financing if they need it, and to invest in the recovery, saying “all the ducks are in the row” to cash in on growth. However, it pointed to a continued lack of momentum in the eurozone – the UK’s biggest trading partner – and the timing of the Bank of England increasing interest rates as potential factors holding investment back.

This has been further tested by allegations that banks put small companies out of business in order to cheaply buy up their assets, and more recently, that they abused the enterprise finance guarantee scheme, a programme to improve lending to SMEs.

However, the ICAEW found that 74pc of businesses feel that they are understood by their bank, and an overwhelming majority find loan and overdraft facilities renewed.

However, larger companies are more likely to be treated well by banks, with many small businesses still struggling, the body said.

“The finance is there for those who want it, and relationships with the high street banks are on the up in most cases. However if the recovery is to be sustainable this must transfer across to businesses of all sizes, and not just medium and large firms,” said Stephen Ibbotson, the ICAEW’s director of businesses.

A separate study from Lloyds found that small and medium-sized businesses are cautious about their prospect to improve exports. Almost three in five firms – 58pc – with annual sales of between £25m and £750m do not sell abroad and only 7pc of those that do not currently export plan to do so in the next five years. 

more