Small companies holding back on new investment

COST pressures and weak domestic demand are preventing small businesses from investing in future growth, a survey by Lloyds TSB unveiled today.

Fewer than one in five firms expect to boost their level of investment over the next six months, while slightly more (21 per cent) are planning cuts.

The negative balance (minus two per cent) in Lloyds’ survey is slightly worse than the minus one per cent recording at the beginning of the year.

The news is a worrying sign for the economy, with many analysts hoping that rising business investment would more than offset any real-terms slowdown in government spending.

“If businesses do not invest it could damage an already fragile recovery, and result in even slower growth,” commented Lloyds TSB Commercial director John Maltby (pictured).

Investment levels could be aided by a pick-up in economic conditions, according to the survey’s business confidence index.

The sub-index showed an upturn in the proportion of companies expecting higher sales order and profits over the coming six months, rising to a positive balance of 15 per cent (from 12 per cent in the previous survey).

Yet even this section of the survey remains below its historical average of 21 per cent, and below its level one year earlier (18 per cent).

Nearly half (46 per cent) of the surveyed firms said they expect to increase exports in the next six months. Yet sluggish domestic demand was listed as the biggest threat to 56 per cent of firms.

The gloomy news was compounded by a separate survey which reported a 12 per cent rise in the number of companies facing “critical” financial difficulties.

Sectors dependent on consumer demand, such as tourism, hotels and retailing, have been most severely hit, Begbies Traynor’s latest red flag alert states.