Monday, 4 August 2008

Cash for Caltongate?

UK businesses face biggest cash flow crisis in two decades

British businesses are heading for the biggest cashflow crisis since the last recession, prefiguring a major slump in corporate spending and potentially pushing unemployment up by almost 1m, experts have warned.

In what economists have described as a "clear recession warning", the spare cash available to British companies has fallen to the lowest level since the early 1990s. Companies are also digging into their credit facilities at the fastest rate since 1992, when the country was last in recession.

According to figures from the Bank of England, the amount that companies had in available, unused credit facilities dropped by 13.3 per cent in the 12 months to June.

In May alone they dropped by just under £23bn - the biggest one-month fall since records began in the late 1980s.

Peter Spencer, economic adviser to the Ernst & Young Item Club, said such an outcome seemed inevitable. "When banks don't have enough money to lend to each other, why should they lend to anyone else?

"This recession started in the housing market but it is spreading like a virus. And now it is the corporate sector facing severe pressure.
This is a very worrying further step towards the edge of the cliff."

Full Article here -Telegraph 2nd Aug 08