Why Thursday’s rate cut may make little difference

More signs that it is getting painfully tough for Notts businesses right now, and that the unwillingness of banks to take a punt on even remotely risky expansion will slowly throttle some companies.
The first sign came at the East Midlands Property & Business Show earlier this week. As you’d expect, this industry bean-feast was a little less exhuberant than it was a year ago, when deals were still being done, money was still flowing and city living hadn’t turned into a relic of a bygone boom.
What struck me as I walked round the East Midlands Conference Centre was not the lack of optimism, but the lack of banks. Last year, they were there in force, RBS even splashing out on a Formula One demonstrator.
This year? Only Barclays took a stand. As a metaphor for the banks’ decision to run a mile from large-scale property lending, their collective absence spoke volumes.
The second sign came in figures released on Wednesday by TDX Group, the Nottingham company which advises banks, electricity and gas companies on the best way to collect their debts.
In short, the numbers of people struggling to pay what they owe to the banks and utility firms is shooting up - which is why banks will remain reluctant to lend even if there is the expected cut in interest rates on Thursday.
They don’t want to dole more loans out when they are expecting fewer businesses and individuals to pay back what they are already owed.
Is there any light in all this gloom? A little, and it may point to the way businesses will have to operate in the future.
The optimistic note came in a chat with the chief executive of a Notts company that’s quoted on the Stock Exchange. He wasn’t gloating by any means, but when he disclosed that the sale of an overseas business meant he’d got the best part of £10 million in the bank you understood why he remained confident despite a share price knocked by the credit crunch.
He doesn’t need to take his begging bowl to the banks or venture capitalists to fund sensible expansion. Rivals that do will instead beat a path to his door and ask if he’s interested in buying them.
In other words, cash-rich businesses are in an extraordinarily strong position – not just because they can weather the storm, but because they may be able to take rivals out of the market and put themselves in pole position for when the economy recovers.
Funding your own growth isn’t easy, and banks have got to get back into the habit of making decisions about business loans based on sensible commercial logic, not their own crisis of confidence. Only a big interest rate cut is likely to improve this situation, and the Bank of England's past form isn't promising here.
Even if rates are slashed, improvement won’t come quickly, and the Notts businesses that thrive in the future may well be the traditionally-run tortoises rather than the live fast-die young hares.