Sales boost business optimism

BUSINESSES are much more confident about their sales and profits than they were three months ago, according to the latest quarterly survey by Dun & Bradstreet. But the outlook for unemployment is still grim, with twice as many firms planning to shed jobs as to take on new staff.

The findings are in line with other recent surveys showing revivals in business and consumer optimism since the autumn. These - together with a surge in car purchases and buoyant spending in the new year sales - have encouraged hopes that the economy at last may be emerging from recession.

Prospects for recovery were discussed by Norman Lamont, the Chancellor, and senior Treasury officials at the annual pre-Budget strategy meeting at Chevening, the Foreign Secretary's country residence, over the weekend. They discussed the possibility of tax increases - perhaps by extending the scope of VAT - to help rein in the Government's ballooning borrowing requirement.

The Treasury believes this will be around pounds 44bn in 1993/4, but some City economists fear a total nearer pounds 50bn. However, the Chancellor is under pressure to be cautious on taxes until it is clear that recovery has taken root.

The D&B survey suggests that businesses are also nervous that the latest 'green shoots' of recovery may wither away, despite almost half expecting to benefit directly from measures to boost growth in the Autumn Statement.

Philip Mellor, D&B's marketing manager, said: 'After nine successive quarters of decline in the UK economy, this survey suggests that the recovery is set to take hold in the new year. However, executives are more cautious than a year ago when the upturn failed to materialise.'

A balance of 17 per cent of firms expect 1993 first-quarter sales to be higher than a year earlier, up from 2 per cent forecasting an annual improvement for the fourth quarter last year. However, firms are less optimistic than before Black Wednesday.

Optimism about profits has risen much more sharply. The proportion of firms expecting profits to be higher than a year ago is at its highest level since the end of 1989. There has been little change in firms' pessimism about their employment plans, but a slight rise in the number that expect to raise prices.

Reflecting the fall in the value of the pound since Britain left the exchange rate mechanism - making home-produced goods cheaper in overseas markets - firms are more confident about export prospects than at any time for two and a half years. Export optimism is particularly strong among companies in the East Midlands, although they are more pessimistic about sales and orders. Export optimism is also high in the North-east.

Overall optimism has increased most sharply in the past three months in London and the South-east. The West Midlands is the most pessimistic region regarding sales, profits, exports and orders.

The ability of small firms to play their part in recovery is being imperilled by the attitude of the banks, according to a survey of 6,000 business owners carried out by the University of Nottingham.

Bank charges, interest rates and collateral guarantees are seen as key problems, with 40 per cent of business owners saying the banks did not understand small firms. However, the study found little evidence that banks were systematically denying their small business customers the benefits of base rate reductions.

The study concludes that one danger of the recession may be that small firms will be unable to get sufficient bank finance to expand when spending on their products begins to recover. This is particularly worrying given the importance of small firms in generating employment growth in the early stages of recovery.

'The relationship between small businesses and banks has been put under such pressure that in many respects it is probably at an all-time low,' Martin Binks, of the Univeristy of Nottingham, told the BBC's Money Programme.