Small firms seek urgent aid from Brown as industry suffers cash crisis

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Business leaders yesterday called on the Chancellor to introduce an emergency package of measures to help rescue small manufacturing companies from their worst cash flow crisis since the recession of the early 1990s.

The call followed a grim survey from the British Chambers of Commerce warning that manufacturing was now in a "critical condition". The survey, largely carried out before the events of 11 September, shows domestic orders and export sales down, further job cuts in the pipeline and confidence ebbing away.

David Lennan, the BCC's director general, urged the Bank of England to cut interest rates by a further quarter point next week. Mr Lennan and the BCC's president Anthony Goldstone also met Gordon Brown yesterday to urge tax breaks for small and medium-sized firms and immediate help to ease cash flow difficulties.

The BCC wants the Chancellor to allow small manufacturing firms to defer payments of VAT, National Insurance and PAYE, much as he did for rural businesses at the height of the foot-and-mouth crisis.

Mr Lennan said it was essential that Mr Brown went for a "confidence boosting Budget" when he produces his pre-Budget report in November. "The picture is poor, particularly for manufacturing. A lot of industries are now really beginning to suffer," he added.

The BCC's survey, one of the most comprehensive of its kind covering nearly 7,400 businesses, shows domestic orders are now down to their lowest since the emerging markets crisis three years ago while manufacturing export orders also plummeted in the last quarter.

The survey also shows that manufacturers are experiencing the most severe deterioration in cash flow since 1992. Confidence in both manufacturing and service sectors, meanwhile, is at its lowest since early 1999.

Ian Fletcher, the BCC's chief economist, likened the situation more to the mini-crisis of 1998 than the full-blown recession of a decade ago. "We remain reasonably confident that the UK economy is not heading for recession but there is little margin for error. The greatest risk to the economy is that it loses momentum. Once it does that it could slide fairly quickly," he said.

John Butler of HSBC said the survey was consistent with a continued slowdown in growth rather than contraction, adding that he expected one more interest rate cut by January.

The sharpest slowdown in sales and confidence was recorded in the London region, where firms were not surveyed until after the attacks on New York and Washington. Mr Lennan said he was reluctant to extrapolate from the London figures to the rest of the country but he said that based on soundings he had taken on regional visits confidence elsewhere had also been "rocked".

The FTSE 100 index closed up 11.8 points at 5164.9, having been 127 points higher.