Credit crunch lacks teeth in UK, KPMG claims

No adverse impact seen from tighter borrowing conditions, survey reveals

Most UK firms are still optimistic about their future business

UK business confidence still remains strong despite increased talk of a recessions, according to figures released by market watcher KPMG.

On the day chancellor Alistair Darling is due to make his first Budge speech, KPMG's survey of senior executives around the country, show that despite ongoing volatility in the financial markets, other businesses appear quietly confident about their own prospects.

According to the figures, 88 per cent of UK firms believe the UK is in the throes of an economic slowdown, but despite that 60 per cent claim that prospects for their own company over the next 12 months are either good or very good. In addition, 70 per cent do not expect to make job cuts this year, but 82 per cent expect other companies to do so.

Scott Cormack, head of markets at KPMG UK, said: “This survey acts as a timely snapshot of what is keeping the UK's chief executives awake at night. What is most interesting is that there appears to be a real dichotomy between the lack of confidence in the wider economy and that of the non-financial businesses themselves. These findings suggest that their fundamentals remain sound.”

In addition, almost two thirds of respondents (63 per cent) do not expect generally tighter borrowing conditions as a result of the credit crunch to adversely affect their own business, and 79 per cent of those questioned by KPMG believed the UK is either competitive or extremely competitive in Europe.

Cormack added: “This begs the question as to why Britain’s businesses are more optimistic about their own fortunes than they are of the wider economy. Is it that they are being caught up in the hype surrounding the credit crunch and therefore feel compelled to say that we’re experiencing a downturn, when in actual fact, things are healthier than they seem? Or is it that Britain’s businesses are just a supremely confident and robust bunch who believe they can weather the storm?”

However, despite the perceived optimism - 37 per cent of respondents said they felt the present Cabinet is not friendly towards entrepreneurs.

Cormack said: “Much has been written over the last few months about the Government’s perceived attitude towards enterprise, particularly in light of the recent changes to Capital Gains Tax, so it will be interesting to see if and how this is tackled today. Certainly what is clear from our findings is that clarity, transparency and consistency are far more important to business than changes to the actual tax rate itself.”

According to the survey, the chancellor should do more to encourage an entrepreneurial culture by focusing on initiatives such as reducing red tape (93 per cent), providing greater financial benefits for innovators (77 per cent), teaching business skills in schools and colleges (72 per cent) and providing better local support for enterprises (74 per cent).

Cormack concluded: “What we are hearing loud and clear is that businesses fear the current skills shortage in the UK is a major barrier to growth and is therefore something that needs tackling urgently. A total of 55 per cent of businesses believe that the UK falls short in terms of skills, particularly with regards to numeracy and literacy - for a world financial centre, this is quite a cause for concern.”