The Bank of England is expected to cut interest rates later to their lowest for more than half a century. Economists and business leaders have called for a one percentage point cut to 2% – a level not seen since 1951 – to prevent the downturn deepening.
Lloyds TSB has promised to pass on in full any further reductions in base rates in 2008 and 2009 to small businesses as part of a six-point charter for SME customers to help them weather the current economic downturn. It will also maintain overdraft limits and overdraft margins at existing levels for businesses with a turnover of up to £1m.
However a rapid deterioration in business conditions since the first significant rate cut has raised fears Britain could be heading for a much deeper downturn than had been previously thought.
Despite the above statement from Lloyds TSB, businesses have reported continued restrictions to bank loans, mortgage lending has slowed, unemployment has risen, consumer confidence has fallen and shops have slashed prices to attract customers in the Christmas shopping season.
The feedback we have had from businesses is still a feeling that the banks are putting out statements and saying they are lending when they are not. Business really needs cash flow finance to work through this economic downturn.