smallbusiness.co.uk: Helping your business think big

According to Adam Applegarth, the former boss of collapsed Northern Rock, ‘Life changed on 9 August. That was the day all the markets simply froze. London, the most liquid market in the world, was effectively closed.’

As the ‘credit crunch’ turns one year old, things don’t seemed to have improved much. Now, not only are the banks refusing to lend to one another, they are refusing to lend to their customers.

This, coupled with soaring inflation, rising energy and food costs and tumbling house prices, means the outlook is definitely a bleak one.

Looking through the finance pages of the various weekend papers, it is difficult to escape the reality that the UK is heading, thick and fast, towards a recession.

With headlines like ‘putting the squeeze on bank accounts’ (The Daily Telegraph), ‘beating back inflation fears’ (The Independent) and ‘Barclays shuts loans business' (Daily Mirror), it’s hard to escape the fact that the country is in trouble.

Figures from business information provider, Equifax, support the view that the economic downturn is taking its toll on business, reporting a 10 per cent rise in business failures in the second quarter of 2008.

Small businesses, I expect, are more than a little worried – not only are they trying to cope with a financial market that is drying up, but they also have to deal with soaring day-to-day running costs and a shrinking customer base.

It isn’t surprising then that the latest report from entrepreneur think tank, Tenon Forum, reveals many businesses are considering redundancies or pay cuts, or that almost 10 per cent have concerns that their business might collapse entirely.

The worst thing about this whole sorry mess is that no one has a clue what will happen next.

For example, Trevor Williams, chief economist, Lloyds TSB Corporate Markets, recently suggested, ‘While it is true growth is likely to slow from three per cent last year to an average of 1.75 per cent this year, we're likely to avoid recession this year and next, helped in part by the weakening pound.’

But Ian Kernohan, Royal London Asset Management's economist, this week suggested that: ‘The economy may already be in recession.’

In the beginning, we trusted the newly crowned Prime Minister when he stated that Britain was in ‘as good a shape as it could be to weather the storm’, and even the economists and analysts confirmed this was the case.

But one year on and those that were confident that the storm would simply blow over have fallen silent and the country is teetering on the edge of a full-blown recession.

It’s going to be a bumpy ride.