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While Britain’s political and banking leaders contemplate the extent of the damage that might be inflicted on the domestic economy by the eurozone crisis, those supplying manufactured goods for sale or export would do well to keep calm and carry on.

For Will Butler-Adams, managing director of Brompton Bicycle, a stagnation of high street spending in the UK and European slowdown has not hindered 20 per cent year-on-year growth in sales of its niche range of folding bikes that can cost more than £800.

But the company, one of Britain’s few remaining bicycle manufacturers in a sector dominated by east Asian suppliers, is typical of many small businesses that successfully navigated the financial crisis and subsequent recession of 2009. Like many of its small and medium-sized enterprise (SME) peers, it is pondering investment, but wary of relying on bank borrowing to do so.

Investment plans for Brompton – which include new factory space for expanded production and a first store in China – are tempered by the desire to maintain a £1m buffer within larger cash balances.

“We have £2.5m in the bank,” Mr Butler-Adams says. “Four years ago we were operating in the red – now we want £1m in the bank as a minimum against [problems] and if the banks don’t lend – and another £1.5m to play with.”

Mr Butler-Adams’ reluctance to rely on bank borrowing even during a phase of expanding export-led sales growth might appear overly conservative to many. Surely it is precisely at such times that businesses ought to be borrowing rather than hoarding cash?

But such an approach appears to fit a pattern of fractured trust between the SME sector and banks. Created during the crisis of 2008-09, it has yet to heal. Now the relationship is threatened still further by nervousness over the future willingness and ability of banks to extend credit as the eurozone crisis deepens.

A report commissioned by the Institute of Chartered Accountants for England and Wales into access to finance for SMEs, published early last year, concluded the majority of respondents felt that “whatever trust existed between banks and SMEs in 2009 has mainly dissipated, due to the ways SMEs have been treated by banks in the last nine to 12 months, in particular when seeking finances”.

It added: “Most feel that there is currently no real ‘relationship’ between the banks and their SME clients. Any relationship, such as it is, is mainly seen as weak or poor, and certainly worse than it was before the credit crunch.”

Learning to live without lending from banks appears to be a pattern that has stuck for many companies, regardless of their creditworthiness. And, in a reversal of positions, cash-rich companies are now concerned about the health of the banks.

The latest quarterly SME finance monitor published by BDRC Continental, the consultancy, suggested there was an increasing proportion of medium and smaller businesses who were “happy non-seekers” of bank lending, who had neither applied for finance nor wanted or needed to.

“There is a lack of trust in the banks in this market,” confirms Mr Butler-Adams. “There is a very uncertain situation in Europe – we are not out of the woods.”

Concern over the health of banks exposed to large-scale defaults in Europe has also provoked a defensive financial strategy at JML, the
consumer goods distributor.

More than three years on from the demise of one of its best-known outlets, Woolworths, JML’s founder John Mills argues that in spite of continued pressure on the UK high street, the company is thriving – it is the banks he is worried about.

“We are in a strong position. We are a profitable company with a strong customer base,” he says. “And shopping groups are, with one or two exceptions, creditworthy.”

But the general fragility of the UK and European economies has continued to threaten the amount of help many businesses can expect to receive from clearing banks as the threat of a double-dip recession looms.

“We have a variety of credit lines. We are not deciding against doing anything because of a shortage of cash,” says Mr Mills. “But we have been diversifying our banking facilities – we are nervous and there is safety in numbers.”

Instead, the main constraint on trade, he says, is the general lack of confidence in economic demand in the UK and continental Europe, which accounts for the bulk of the 40 per cent of JML’s sales not generated in the UK.

“The corporate sector is strong in cash, though some are now struggling, while some continue to expand,” he says. “If you have an economy that is shrinking, the average business is not going to expand – it is very difficult to convince people to invest if there is no prospect of recovery in the future.”

Though Brompton has enjoyed success in expanding exports, sterling’s recent appreciation against a weakening euro has forced the company to impose a mid-year price increase on its range of folding bikes destined for the continent, which accounts for about 40 per cent of sales. Much of its business is naturally hedged, as the proportion of sales made in the eurozone is matched by the proportion of parts priced in euros – just as parts sourced in Asia and priced in dollars are matched by dollar-pegged receipts.

And Mr Butler-Adams argues that businesses caught by surprise in the last recession are better prepared in general to face the next phase of difficulties. “Businesses struggling three years ago have gone bust or done something to make their situation better. But we have to get out and export. There is no recovery coming from the UK – or Europe.”

Plans for a new shop in Shanghai reflect booming Asian prospects, and new sales and distribution leads are being pursued in South America. Business in the US remains positive. And even in the flatlining economies of Europe, Brompton’s cult status still leaves the company keen to invest in expansion – if paid for out of its own resources.

For Mr Mills, though, his company’s success in navigating the “sink or swim” conditions facing many UK mid-tier businesses still leaves Britain facing an economic policy disaster leading to high unemployment, stagnant living standards and a manufacturing decline prompted by a defence of sterling.

“The real route to re-establishing the scale of investment needed to create a manufacturing renaissance in the UK is a devaluation of sterling,” says Mr Mills, who apart from establishing his own business is also former Labour finance chief of Camden Council in London.

As an importer of many consumer goods manufactured in east Asia and denominated in dollars, he is aware that his key policy prescription – effectively the same devaluation argument some support to revive the Greek economy – would hurt the cost base of his own business in the short term.

“But it is what is best for Britain, not JML,” he says. “If the exchange rate did go down, we are experienced enough to overcome this problem. Life would be difficult but not terminally damaging – it is what is best for the country.”

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