UK firms 'adapting to recession'

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UK firms have shown a slight rise in short- and mid-term confidence as they accept the realities of the recession, a survey of 11,000 firms suggests.

BDO Stoy Hayward said the growth in optimism suggested action was being taken to adapt to the economic climate.

But firms cutting back meant 320,000 more jobs would go in the next three months, BDO's report predicted.

Separately, KPMG said 81% of firms now saw the economic situation as "bad" or "very bad" - from 60% in December 2008.

Its report was based on a survey of 203 organisations.

The two reports were released as the British Chambers of Commerce (BCC) outlined policies it said were needed to encourage short-term business growth and to enable longer-term economic stability. Optimism remains low and businesses expect the economy to continue to contract, but companies are now adapting their business models for an uncertain future Peter HemingtonBDO Stoy Hayward

The blueprint - including calls to freeze the minimum wage, free up credit markets and to create enterprise zones - has been presented to the Bank of England, the Treasury and the Department for Business, Enterprise and Regulatory Reform.

"It will be business that leads the UK out of recession. It is vital that government does all it can to help companies by allowing them the freedom to create jobs and wealth," said the BCC's director general, David Frost.

False dawns

The slight rise in optimism detected in the BDO report was "encouraging", said Peter Hemington, a partner at the firm, but he added it was "still too early to say" whether confidence had hit rock bottom.

"Optimism remains low and businesses expect the economy to continue to contract, but companies are now adapting their business models for an uncertain future," he said.

"We've already seen a number of false dawns, but this month's modest increases are encouraging. We must watch carefully to see if this is the start of an upward trend."

Mr Hemington said firms were taking "decisive" action to tackle the challenges of the recession - from halting production to changing working patterns to trim costs.

This was shown in the rise of part-time employment in the latest official government employment figures, he added.

'Extreme situations'

The research by KPMG suggested that only one in 10 firms felt the economy's lowest point had been reached, something that was "indicative that many fear worse is yet to come".

But it also saw a "faint glimmer of optimism", saying that two-thirds of businesses believed the crisis would be over in a year or two, though 16% predicted the recession would last for more than two years.

And 87% of respondents said the economy would get worse before it got better.

The KPMG research echoed the BDO finding that firms were seeing changes in the deployment of their workforce as a potential way of saving money as an alternative to redundancy.

"In our day-to-day conversations with clients, we are asking them to consider more extreme situations than ever before," said KPMG's head of markets in the UK, Malcolm Edge.

"We're asking what would happen to your business if your sales fell by 50% or what if your biggest supplier became insolvent?

"Some of our clients may think we are being overly dramatic, but in fact we are only asking them to model scenarios that are actually happening across the marketplace."