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Manufacturers still reeling from credit crunch, report warns

Published 08/08/2016

Many manufacturers are shunning banks in favour of self-financing investment projects
Many manufacturers are shunning banks in favour of self-financing investment projects

Manufacturing is suffering a "persistent hangover" from the credit crunch which could be hitting investment in the crucial sector of the economy, says a report.

The EEF said most manufacturers were confident of securing finance, but only a third were more likely to use finance than they were two years ago.

Just over half of firms were holding more cash on their balance sheets compared to pre-recession levels, said the manufacturers' organisation.

The report raised concerns that companies were "shunning" banks in favour of self-financing investment projects, potentially leading to lower investment levels.

The EEF said the Competition and Markets Authority's final recommendations on the competition failures affecting retail banking services for smaller firms, due out on Tuesday, must "pack enough punch to stop the rot".

Lee Hopley, the EEF's chief economist, said: "Manufacturers' reluctance to rely on external finance is a persistent hangover from the credit crunch, where trust and confidence in the banks stalled and never quite recovered.

"But with the Brexit vote dampening investment intentions and adding to uncertainty, this pre-existing condition could now become further aggravated, posing a risk for growth.

"This makes the CMA's package of reforms even more important. The CMA cannot prevent a fall in investment intentions, but it can help to strengthen supply dynamics in the market and resolve some of these long-term issues by providing swift and firm remedies that pack enough punch to stop the rot.

"Whether the next recession is in one year or 20 years' time, the problems in this vital market must be fixed. Manufacturers must have access to finance - progress needs to be seen."

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