Extended Recession may Force Redundancies

Extended Recession may Force Redundancies

Extended Recession may Force RedundanciesSmall firms that have avoided making redundancies in the hope that the recession would not be too long, may now be forced to make cutbacks, the Institute of Directors (IoD) has warned, writes Kate Horstead.

Figures from the Office for National Statistics (ONS) have revealed that the UK economy was still in decline in the third quarter of 2009, with GDP falling by 0.4%. The research found that there were declines in output in all sections of the economy.

Economic analysts have warned that the results were worse than expected and point to a slow recovery.

“The figures are disappointing for businesses, which may have to make more redundancies due to the difficulties in obtaining bank credit,”

said IoD senior economist, Peter Patterson.

“Many businesses have avoided laying off workers because they were hoping the downturn wouldn’t be too deep or too long, but they may soon be unable to afford to keep them on. Small firms are struggling to get finance because of the state of the banks, and the longer it goes on the more difficult it will be.”

Patterson said that although output is likely to improve soon, unemployment will not decrease for at least a year.

“We would expect GDP to become positive soon, either in the current quarter or at the start of next year,” he said. “When the economy starts to grow at the trend rate of 2.5% we will see some reduction in unemployment, but we won’t expect that for another year or two yet.

“It will be a slow recovery because of the debt, the fiscal deficit and the fact that some of the policies that were implemented to help us get through the downturn will come to an end,” added Patterson.

The British Chambers of Commerce’s (BCC) chief economist, David Kern, agreed that the ONS figures were discouraging, particularly for the private sector.

“The deeply disappointing news that the recession did not end in quarter three is a blow to confidence.”

“The risks facing the economy are serious and forceful corrective action is still needed. The figures strongly support our assessment that the Monetary Policy Committee must increase the stimulus provided by quantitative easing, and must take action to boost bank lending.”

A Department for Business, Innovation & Skills (BIS) spokesman said that the Government has taken steps to encourage the banks to lend to firms — for example, through its Enterprise Finance Guarantee scheme. However, the spokesman would not comment on any future plans to aid economic recovery.

For further information read our business advice article regarding redundancy.

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