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Private sector growth not strong enough to absorb public sector cuts

11 August 2010

An overwhelming 83% of senior financial and legal professionals believe private sector growth over the next 2 years will not be enough to support the influx into the labour market caused by public sector spending cuts, according to a recent survey by FRP Advisory LLP, the restructuring, recovery and insolvency specialist.

The firm surveyed more than 100 senior managers and partners in July from banks, commercial lenders and law firms.

Commenting on the results, Simon Glyn, partner at FRP Advisory, said: "The experience of advisers is that clients are still wary of expanding too quickly and do not envisage significant levels of growth over the next couple of years. Forecast growth would have to be exceptionally high among privately-held businesses to absorb the 40% public sector cuts – which equate to thousands of jobs, and that simply isn’t the case."

The survey also found that 57% of respondents believe it is no easier now, versus 12 months ago, for businesses to secure bank funding. Simon Glyn believes that this, coupled with a stumbling recovery highlighted today by the Bank of England revising its 2011 economic growth forecast down from 3.4% to 2.5%, means the private sector will remain cautious in the short-term.

"The recovery is tentative, making business leaders circumspect in their outlook. Particularly in the SME community where, for many owner-managers, it is very much about nurturing and protecting signs of growth and consolidating the business. This caution is being mirrored by banks and, while securing finance is relatively challenging, the appetite for aggressive expansion will also remain subdued."

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