Welcome to the January 2009 Newsletter from Connolly Accountants & Business Advisors

With 2009 predicted to be a difficult year for business, the Government has unveiled a raft of measures to help firms through these troubling economic times. Central to the rescue package is a Working Capital Scheme, which will guarantee up to £20bn of short-term bank lending. It is hoped the move will thaw the UK's frozen lending market and inject movement into the stagnant economy.

And in a further attempt to aid the UK's economic recovery, the Bank of England has cut interest rates to 1.5% - the lowest level in its 315-year history. However, minutes from the meeting reveal the Bank’s Monetary Policy Committee was divided over the cut, with one member voting for a full point reduction to 1%.

SMEs offered credit lifeline as recession deepens

A multi-billion pound aid package designed to help small and medium-sized enterprises (SMEs) through the financial crisis has been unveiled by the Government.

Earlier this month, Business Secretary Lord Mandelson announced that the Working Capital Scheme will guarantee 50% of short-term loans up to a total of £20 billion in return for a fee. From 1 March companies with a turnover of up to £500 million will be able to apply for funds under the scheme.

Lord Mandelson said the measures would target 'genuine business needs'.

The rescue package also includes an Enterprise Finance Guarantee Scheme, which will secure up to £1.3bn of additional bank loans to firms with a turnover of up to £25m.

Eligible businesses will be able to borrow a maximum of £1m, with 75% guaranteed by the Government. The money will go to 'smaller, viable, creditworthy firms hit by the downturn,' Mandelson confirmed, and may be used for working capital or for new investment.

In addition, a £75m Capital for Enterprise Fund – financed by both the state and the banks – will be set up to invest in viable small businesses which need equity.

Phil Orford, Chief Executive of the Forum of Private Business, applauded the plan. 'This package is certainly welcome and is likely to address some of the credit restrictions that our members are facing,' he said.

Notwithstanding this, Chancellor Alistair Darling also outlined a second package of measures to encourage banks to resume lending to individuals and SMEs. The £300bn bail-out includes a scheme to offer insurance against banks losing more money from the toxic debt that started the credit crunch.

The move comes as thousands of businesses and individuals are battling to stay afloat because banks are restricting access to credit to protect their capital. According to the latest figures from the Insolvency Service, almost 300 people were declared insolvent each day during the three months to the end of September.

Some experts have warned that the total figure could surpass 150,000 in 2009 – the highest level since records began almost 50 years ago.

Interest rate cut prompts mixed business response

The Bank of England has cut interest rates to the lowest level in its 315-year history.

Earlier this month the Bank's Monetary Policy Committee reduced rates by 0.5%, taking the base rate to 1.5%. It is hoped the move will aid the country’s economic recovery.

Rates have now been cut four times since September, when they were set at 5%.

Although the decision has been largely welcomed, the British Chambers of Commerce (BCC) criticised the Bank for not going far enough. 'British business is disappointed by the MPC's decision […] to cut interest rates by just a half per cent. We believe it is an inadequate reaction to the rapid worsening in economic circumstances,' said David Kern, BCC Chief Economist.

'The recent downward revision in GDP figures, coupled with further unemployment increases and rapid declines in house prices, justified a full one per cent cut in rates, in line with the BCC’s recommendations.'

While the move may be good news for borrowers, savers have fared less favourably; the rate of interest on instant access accounts has now fallen to its lowest level in five years.

According to new data, the average instant access savings account was paying just 0.81% by the end of December, compared with 2.78% a year ago.

Have you been affected by the Credit Crunch? We can help you and your business through the challenging year ahead - please contact us for more information.


Click here for key tax deadlines for the coming month.


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