Original URL: https://www.theregister.com/2008/03/31/small_biz_credit_crunch/

Credit crunch hits finance sector - small biz next?

Bankers slash IT spend

By Joe Fay and John Oates

Posted in Channel, 31st March 2008 10:14 GMT

The much-embarrassed finance sector will keep a tight rein on IT spending this year as it prepares to jettison as many as 10,000 workers, according to the latest research from the CBI.

The business bigwigs group’s latest forecast shows the credit crunch starting to bite hard in many parts of the finance sector in the three months to early March.

Banking was unsurprisingly hit hard, with business “well below normal” and income falling strongly. This means negative investment intentions “even for information technology”. Securities trading also saw business contracting, which will mean reduced marketing and a slowdown in IT spending growth over the next year. Life insurance companies’ optimism “collapsed”, the CBI found, with companies expecting to spend more on compliance and marketing this year but less on capital expenditure.

However, building societies, while more downbeat than they were, are still expecting to increase spending on IT, as well as on compliance. General insurance meanwhile expects profitability to increase, with a shift to internet transactions driving IT spending up. Fund managers were the only sector to report they were more optimistic, and expected to expand their workforces.

Overall, the CBI said, plans for spending on IT remain flat, with other investment being the lowest since June 1992. A quarter of firms said they had cut jobs over the last quarter, with a third saying they expected further reductions over the coming quarter, with the CBI reportedly saying around 10,000 finance jobs could be eliminated in the coming months.

At the other end of the scale, The Institute of Credit Management is warning small businesses to sort out their cashflow as the credit crunch looms.

But the Federation of Small Businesses is yet to see much evidence of trickle-down from the problems plaguing interbank lending and international finance.

The ICM is leafleting UK small firms advising them to get proper procedures in place before the credit crunch starts to bite. It warns firms to set out payment terms before providing goods or services, invoice accurately and promptly, and to find out as much as possible about new customers including using credit agencies if necessary. Finally, it urges companies to act quickly if payment is not received or is late.

However, a spokesman for the Federation of Small Business said that UK small firms are yet to feel the impact of international problems.

He said: "There's no evidence of the economic downturn hitting order books here. We have some anecdotal evidence that people are finding it harder to find financing but small businesses in the UK have borrowed £40bn but this is outweighed by deposits of £44bn."

The FSB sees two possible impacts - increasing difficulty in getting funding and the impact on consumer confidence and spending. But right now the numbers of start-ups is up and "manufacturing is having a bit of a renaissance". ®