CBI says credit crunch not hurting British firms

Written by:
Subscribe to Oneindia News

LONDON, Nov 25 (Reuters) There are some early signs the credit crunch is starting to take its toll on small businesses, but the impact on the economy is likely to be only limited, according to a poll by the Confederation of British Industry.

The survey, published ahead of the CBI's conference next week, comes as uncertainty on global financial markets has driven up 3-month lending rates -- a benchmark for corporate loans -- to their highest in several months.

But in a blow to embattled finance minister Alistair Darling, who will address the conference on Nov. 27, nearly half the 500 firms polled said his plans to change capital gains tax rules would make them alter their investment plans.

On credit conditions, only 12 percent of firms felt the availability of cash had worsened since August, when short-term lending rates rocketed as banks' own exposure to risky loans made them more reluctant to lend to others.

However, a fifth of firms expect it will become more difficult to borrow in the next three months and nearly a third envisage tighter lending conditions in the next six to 12 months.

''The credit crunch has not caused funding to small firms to dry up, and the bulk do not think they will be affected,'' said CBI chief economic adviser Ian McCafferty.

CBI Director General told Reuters in an interview that he did not expect the turmoil on global financial markets to have a dramatic impact on the wider economy.

TIGHT CREDIT The soaring cost of borrowing caused a funding crisis at mortgage lender Northern Rock, forcing it to seek an emergency loan from the Bank of England and triggering Britain's first bank run in more than a century.

But so far the impact on companies outside the financial sector has been muted, the CBI said, with around a quarter of firms polled reporting a rise in the cost of credit of up to 50 basis points.

That compares with a surge in 3-month Libor rates of nearly 160 basis points this year. The 3-month rate is currently at 6.52 percent, 77 basis points above the Bank of England's 5.75 percent Bank rate.

The survey also polled firms on their feeling about planned changes to the capital gains tax system. Finance minister Alistair Darling has proposed cutting the headline CGT tax rate to 18 percent from 40 percent, but at the same time scrap allowances for longer term investment.

The CBI poll showed more than two thirds of companies felt the changes had shaken their confidence in the government's approach to enterprise and more than 90 percent think it now needs to restore that commitment.

The findings come at a bad time for Prime Minister Gordon Brown, who will address the CBI conference on Monday, and whose poll ratings have slumped as criticism mounts over the government's handling of the Northern Rock fiasco.

An opinion poll on Friday showed only 28 percent of voters have confidence in the ability of Brown and Darling to run the economy, down from 61 percent in September.

Reuters TB VP0655

Please Wait while comments are loading...