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Post-recession hangover will linger warns the professional services sector

3 September 2010

70% of professionals in the financial and legal sectors believe the worst effects of the recession are still with us, according to a recent poll by FRP Advisory LLP, the restructuring, recovery and insolvency specialist. The firm surveyed more than 100 senior managers and partners from banks, commercial lenders and law firms over the summer.

Commenting on the findings, Philip Watkins, Partner at FRP Advisory, said: "The slow recovery, threat of spending cuts and general uncertainty are all taking their toll on business; and despite the better than expected growth in the second quarter the Treasury remains only "cautiously optimistic." The fragile nature of this recovery is leading many businesses to stay in "recessionary" mode; scrutinising spend and forecasting only modest growth.

"This means the worst effects of the recession: unemployment, low confidence and flattened performance remain and are likely to linger for some time."
According to Philip, one of the most surprising aspects of the recovery is the steady drop in insolvencies. "On coming out of recession, we usually see a jump in insolvencies – often caused by companies over-leveraging, but this time we’ve seen a decrease. This could be due to the nature of this recovery, businesses are being far more cautious and so over-leveraging is unlikely, or it could be because banks are falsely propping up companies and, once a more robust trading environment returns, they may drop them in favour of other opportunities that will yield a quicker return on their money."

The survey also asked whether the Emergency Budget would aid the UK’s economic recovery. The responses suggest a "jury’s out" sentiment; 43% believe it will, 23% don’t think it will help and 34% weren’t sure. Philip continues: "Though largely positive, there were of course mixed reactions to the Budget across the business community, which these results demonstrate. The commitment to reducing the deficit rallied business and investor confidence, however, the reality of the cuts and increase on VAT will inevitably have a negative impact in the short-term, particularly on the small to medium enterprise sector.

"The ever changing economic landscape makes it even more important that managers get the right advice at the first signs of any trading difficulties. With a still reticent lending community, companies need to be on the front-foot with sound business planning and cash flow forecasts, should they be making any approach for funding."

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