Ninety billion reasons not to loosen your grip on the purse strings

A survey suggests that if businesses start spending over-enthusiastically now the economy's on its way back up, it could cost UK plc £90bn.

by Emma Haslett
Last Updated: 16 May 2011

If you spent the recession forgoing heating and forcing your employees to use newspaper instead of loo roll, you’d be forgiven for wanting to splash the cash a little now that the economy is starting to recover (a bit). But a new survey by finance firm KPMG points out that a lot of good work could go to waste if businesses return to their old spending habits. Apparently, 95% of the extra costs businesses managed to cut over the course of the downturn could ‘bleed’ back in as they relax their grip on their wallets – which could end up costing them an extra £90bn. Ouch.

In one of the most jargon-tastic press releases ever to get past MT’s spam filter, KPMG said that of the 525 businesses it surveyed, 86% are planning ‘significant changes to their cost base in line with future growth strategies’ – i.e. they’re planning to spend more in order to grow.

In many cases, that’s probably a good thing – 70% said they’re planning to create new jobs, for instance. But others said that their overheads are on the increase again: 76% said that salary inflation is badly affecting their cash flow, perhaps because they no longer have the excuse of recession to keep it down (even Glencore complained about this in its IPO prospectus today). Another 58% said supplier prices were pushing up their costs, while half pointed to the rising price of raw materials such as cotton and oil.

More worryingly for the Government, though, 80% said the cost of financing growth is their biggest worry. Because, while interest rates are at an all-time low, the amount being charged by banks (not to mention some lenders’ policies of asking for high levels of securitisation) mean that if businesses want to expand, they’ll have to cough up for it.

So a few thoughts worth considering before you relinquish that tight grip on your purse strings. Still, at least the sun’s been shining for a fortnight. Should help to reduce that heating bill…

Finance Misc

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