UK companies plan job cuts

Companies are tightening their belts as the credit crunch begins to have an impact on their businesses, with growing numbers planning recruitment freezes, redundancies and other cost-cutting measures, according to two surveys by accountancy firms.

Baker Tilly found that 45 per cent of medium-sized company finance directors were considering cutting costs by reducing staff in early April – up from 26 per cent a month earlier. A quarter of the companies, which had annual turnover of between £20m and £250m, were looking at limiting hiring, while 15 per cent were thinking of redundancies.

Government meets borrowing targets - Apr-19Jobs figures bring welcome relief - Apr-17UK inflation steady, but worries remain - Apr-15Labour market shows resilience - Apr-17Record number of people in work - Apr-16Pound falls to fresh low against euro - Apr-15Nearly two-thirds had also introduced measures to reduce the risks to their businesses, such as tougher credit controls and more credit checks on customers and suppliers – up from 22 per cent five weeks earlier.

More than a third of the mid-cap finance directors thought their companies could be hit by suppliers going bankrupt, compared with less than a fifth at the beginning of March.

Meanwhile, more than half of a sample of larger company finance directors surveyed by Deloitte said they were likely to scale back recruitment plans, with 38 per cent thinking of job cuts.

Two-thirds were likely to cut discretionary spending such as travel and entertainment, while 38 per cent said they were likely to cut investment.

Both surveys showed the cuts in interest rates had failed to improve the supply of credit or reduce the cost of borrowing. Three-quarters of the 34 companies surveyed by Deloitte – almost all in the FTSE 100 or FTSE 250 – said credit was costly, and 62 per cent that it was hard to obtain.

"Despite reductions in base rate in December and February, corporates – like consumers – are facing tougher credit conditions," said Margaret Ewing, Deloitte vice-chairman.

The Baker Tilly survey of more than 100 companies found 60 per cent of finance directors saying their profits were falling, while 32 per cent said the credit crunch had started to hit their businesses harder in March. More than half disagreed with Gordon Brown’s assessment that the UK economy was in a good position to weather the global crisis.

"The finance directors are getting gloomier," said Laurence Longe, Baker Tilly national managing partner. "The headlines day after day are beginning to affect the real economy."

Despite the growing gloom, most finance directors in the two surveys remained optimistic about the longer-term prospects for their own companies.

Three-quarters of the mid-cap finance directors questioned by Baker Tilly said they were sticking with their growth strategies. A third of them expected to make acquisitions.

The larger companies surveyed by Deloitte also saw acquisition opportunities in the credit crunch, with lower valuations of their targets and less competition from private equity.

Most expected to see an improvement in credit conditions later this year or in the first half of 2009. Most also said they expected to raise credit – either new or refinancing – in the next 12 months. Only one said the company was likely to reduce its dividend.

FT