State of the Region: Firms braced for cuts

BUSINESSES in the West Midlands are more worried about the impact on the economy of Government cuts than their counterparts in other regions.

In TheBusinessDesk.com’s State of the Region Survey, run in conjunction with law firm DLA Piper, 52% of West Midlands businesses said they believed the Coalition Government would have a negative impact on the UK economy. Only 12% of readers of our sister site in Yorkshire thought the same.

However, 40% of respondents said they were feeling more confident about the economy that they were 12 months ago, and most said they saw public spending cuts as ‘painful but necessary’.

The impact of the cuts is seen as the key regional challenge in 2011 by 46% of businesses, with 20% saying lack of private investment is more significant. 40% are predicting increased pressure on pricing over the next 12 months.

However, businesses seem to be more confident about their own prospects than that of the economy generally, with 61% predicting growth this year.

DLA Piper logo Just under half (49%) said they thought economic conditions would remain broadly as they are during 2011, although 28% were optimistic that there would be an upturn. One in four were anticipating a worsening of the economic situation.

Transactional activity would concentrate on raising capital and acquisitions, the survey indicated, and prospects for the commercial property sector remain muted, with 32% forecasting very little activity in 2011.

Only 12% expect to see an upturn in the market, although 30% can foresee a glut of owners trying to dispose of existing assets to recoup funds.

More than half (64%) of respondents expect bank lending for businesses to remain tight this year and only 20% think it will increase.

John Campion, partner in corporate at DLA Piper Birmingham, said: “We would expect to see increased levels of M&A activity in 2011 as well as increased capital raising as market conditions improve. Some companies may also see the opportunity to dispose of non core assets, because the uptick in market conditions will narrow the pricing differentials that typically got exposed in a weaker market.”
 
Fiona Thomson, real estate partner at DLA Piper in BirminghamFiona Thomson (pictured), real estate partner at DLA Piper said: “Most property industry experts would agree that the earliest we now envisage a real improvement in the market will be 2012. By then we will have experienced a five year dip in the market. Banks are supporting sensible propositions, including transactions of some scale, but they are understandably cautious with their lending and this will result in little or no speculative development.

“However, 2011 is a year of opportunity for developers who do manage to access finance. We are seeing investment cash coming into the market. Institutional money and pension funds are spending again and although they will be very targeted with their investments, for the right developers they represent excellent joint venture opportunities. Also for savvy developers this will be the year to take advantage of refurbishment opportunities before the BPRA tax incentive comes to an end in 2012.”

FURTHER ANALYSIS OF THE SURVEY:

DAY ONE: Austerity measures won’t stop growth

DAY TWO: Half of firms expecting to recruit in 2011

DAY THREE: Lack of clarity on LEPs

BLOG POST: Why our State of the Region Survey matters

FULL REPORT: Download DLA Piper’s analysis of the survey here

Tomorrow: Three Region Outlook
What do you think of the results? Are you confident about the future? Please leave your comments below.

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