Double dip recession’s north-south divide

The UK economy has for the first time since the 1970s entered into a double dip recession, with the construction, retail and production sectors continuing to struggle.

South East accountants and business advisers James Cowper Kreston believe that unlike the 1970s this double dip recession follows a north south divide.

Sandra Mundy, a partner in the business restructuring team of James Cowper Kreston said: “A general observation based upon our clients and the local business community suggests that businesses in the South are, in the main, doing well.  There is much more optimism in the market and less signs of a contracting local economy.”

James Cowper Kreston also believes that whilst the economy has fallen once again into recession there is unlikely to be any significant increase in business failures.

Sandra says: “This recession, unlike many earlier ones, has not seen the predicted increase in business failures.  Whether this is set to change with the onset of a double dip will remain to be seen.

“Interest rates will play a critical role, with any increase almost certainly having an adverse effect of business earnings.  Whatever the Bank of England does, the prospects for the economy remain uncertain.  Businesses need to be prepared for this new reality - monitoring the credit ratings of key customers carefully, for instance, to look for early warning signs.”

Conversely, businesses facing financial difficulties of their own are more frequently finding their key creditors are taking a more sympathetic position and being co-operative in, for example, extending credit terms. 

Sandra adds: “Some commentators have criticised the business community for driving the economy back into recession by sitting on cash piles and not investing.  This is not entirely fair.  Businesses will only invest if and when they feel sufficiently confident about earning a proper a return on that investment, and at the moment such confidence is simply not there.”

James Cowper Kreston says business nervousness may stem from any number of factors including the outlook for the euro area (our largest export market), continuing fall-out from the Government spending review, anxiety about social or industrial unrest, or employment prospects and resulting consumer spending.

Sandra Mundy, Partner, James Cowper Kreston LLP, Tel: +44 (0)2380 221222 or email smundy@jamescowper.co.uk