Today’s budget changed the “net lending targets” for RBS and Lloyds to “gross lending targets” instead. Is it just political semantics and posturing, or is it a practical move? Time will tell …..but as an ex-banker used to targets…….I think it could turn out to be the latter.

Reading Robert Peston’s blog on the bbc’s website today http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03/chancellor_moves_bank_lending.html he provides a cogent analysis of just why this might be a smart move. He highlights that the banks can now conceivably meet stretching lending targets (and these are circa 20% greater than they achieved last year) whilst also cleaning up and shrinking their overall balance sheets.

So what at first glance looked to many as a semantic fudge, may turn out to be a touch of insight. What is for sure, is that we do need business to have access to increased credit if the recovery is going to be soundly based. A credit crunch was the most potent symbol of the crash and – to date – most of us haven’t really seen it improving for businesses.

When the ONS announced its growth revision upwards from 0.1% in Q4 ‘09 to 0.3% I thought, well its not much more, but what good news. That was until I realised that the revised Q4 figures are actually worse than originally announced, and the “improvement” is only because Q3 was even worse than originally thought. Instead of producing £315,845m in Q4 UK Plc produced £315,712 and yet today’s headline makers fell for the spin and heralded an improvement.

And worryingly the ONS press release accompanying the figures was titled “Services growth in December pushes up GDP estimate”. I say worryingly, because the ONS ‘ own headline is just plain misleading given it is so wrong.

The report actually suggests that Q4’s growth was on the back of car manufacture and retail sales. With the car scrappage scheme in its final stages and VAT already returned to 17.5%, I wonder what Q1 2010 will reveal?

My own view is that our recovery will turn out to be more of a “bounce along the bottom” for two or three more quarters, with the possibility of either Q1 or Q2 2010 showing a retraction. Hopefully not two consecutive quarters to herald the dreaded “double-dip”, and subsequent difficulties in financing the national debt… but that cannot be ruled out. The tough economic times are certainly nowhere near over.

What I found quite telling was its prediction of inflation if market expectations of interest rates hold true. That showed a much weaker outlook for prices, with inflation still below target even in 2013. I reckon this calls into question recent consensus economist opinion of dramatic rate rises from Q4 and now points to a more prolonged period of low interest rates.

In terms of the Bank’s quarterly forecasts for economic recovery - which I am sure politicians are avidly watching out for – the Bank’s Governor, Mervyn King, said that the path for growth was little changed from the last report in November.  On the one hand, the recovery was likely to be weaker than previously thought but on the other the downside risks to growth in the future were smaller.

There were no particular clues about Quantitative Easing being considered further, other than a repetition of what was said after base rates were reviewed by the MPC recently; in other words its a “pause” not necessarily an end to money creation.

Maths and Economics show that “……..if you lay 10,000 economists end to end  ……..they still cannot reach an accurate conclusion” (Sorry!).    However even an old cynic like me listens when the Bank of England’s own chief economist speaks because he should know facts that others can only speculate about.

In a presentation to business leaders in the East of England this week Spencer Dale – who also sits on the MPC (the Bank of England’s interest rate setting committee) – actually said “THE ECONOMY APPEARS TO HAVE TURNED”.

Ok, we may be the last of the G20 to emerge from recession, if this is the case, but coming from a guy who should know, this is welcome news.

CAUTION

Of course you would expect some caveats and Mr Dale cautioned “The recovery in the level of economic activity is likely to be relatively slow” . He also anticipated that inflation could rise above 3pc early next year, , but the spike should be temporary. Excess capacity should take care of that he felt.

GAINING A COMPETITIVE ADVANTAGE THROUGH COST CONTROL

For us in Expense Reduction Analysts, inflationary cost rises are one of the key aspects we try to mitigate against for our clients. Systemic rises through increases in a supplier’s raw material cost base are possibly justified if we have squeezed margin. But our market knowledge can not only verify those, but also allow us to challenge and roll back any other increases.

Its about putting in practice the reality of what is behind Mr Dales’ assertion that spare capacity will tackle the anticipated inflationary pressures. At its crudest it could be about pointing out to suppliers that if they will not maintain a pricing level, there are plenty of others we can give a chance to. However its more than that; its about truly knowing the cost side of the particular market and ensuring that – whilst a margin needs to be made to sustain service levels and  security of supply – the balance is on our client’s side.

After all, our clients will face those pressures themselves in the markets in which they operate. If we can help our clients contain and reduce overheads then that helps them maintain or gain a competitive advantage.

Furthermore, Ernst and Young predict that it could be 2 years before Ireland comes out of recession and warns of the potential of a ‘double dip’.

So what are the options for struggling Irish businesses?

Reduced staffing levels, whether through redundancies and/or short time working have certainly reduced payroll costs already. More redundancies may be forced.

However, a key target for downsizing is always the overhead functions and the middle management tier. It was these people who focused on keeping business processes efficient, supply costs tight and service levels to the required standard. As the recession elongates the erosion of efficiency in these areas will become more and more marked.

In Ireland we are now seeing that while opportunities have increased to reduce overhead costs due to the intense competition of supply, an increasing number of businesses are now unable to take advantage of these opportunities. Even those few organizations focused on achieving the Pareto related goal of getting 80% of overhead spend on contract are now falling short of the mark. They no longer having the internal capability to determine the current supply needs at the detailed level, present effectively to the market and evaluate ongoing contractor performance.

It is no longer just the 20% ‘tail end’ of spend or the specialist areas where a strong cost and purchase management partner can have an impact.

The amount of potential ‘hidden savings’ is increasing as is the need to find them, whether it is just to ‘keep the lights on’ a while longer or to invest in core capabilities for when the upturn does, eventually, come

UK factory orders rose at their fastest in almost six years and activity grew at its fastest pace for two years in October, according to the Chartered Institute of Purchasing and Supply (CIPS).

The survey amongst members suggests the economy has made an encouraging start to the final quarter of the year.

The CIPS index grew to 53.7 from 49.9 in September, and is at its highest level since November 2007.

We are all searching for the fabled “Green Shoots of Recovery” and – allied to last week’s news about retail sales in my earlier blog, some are around!

Another survey showed that the UK’s 350 largest companies could boost profits by £53bn if they cut their procurement and supplier costs by just 5%. The argument is that rather than cut cost by reducing headcount, business needs to focus on reducing procurement costs. Headcount cuts may mean permanent skill cuts and stymie a company from growing again at the right time. This supports the benefit that Expense Reduction Analysts bring to clients as overhead cost savings flow straight to the bottom line.

Are there “Green shoots” in the High St at last? Sales are growing at their fastest rate since the slump began, according to figures today from the CBI.

41% of retailers reported sales volumes for the year to October had risen, and 33% said that they were down.

The net balance of plus 8% was the highest since December 2007.

The findings far exceeded analysts’ expectations of a balance of 3 per cent.

In August, the figure was minus 16 per cent.

Demand for furniture, carpets and other household goods were the highlights reflecting the pick-up in the housing market.

In a show of confidence , the survey found that a balance of 19% of retailers expect sales volumes to improve next month — the most optimistic since July 2007.

No companies have yet taken part in its scheme to lend cash in return for commercial paper reports the Bank of England today.

The “Secured Commercial Paper Facility” aims to channel money to firms by buying asset-backed commercial paper secured on companies’ assets such as trade receivables and credit card debt.

Historically lack of liquidity slows down an economic up turn. With many traditional sources ailing, this may be a potential source of working capital for many businesses. The route to source it is complex, as authorised members of primary and secondary markets have to place the paper……but if client’s “lenders” cite a lack of their liquidity as a reason for denying support, I’d say challenge them as to why they are not using BoE schemes.

Is this the beginning of a recovery?