Embattled small firms seek more rate cuts

By David Brett

LONDON (Reuters) - Smaller companies say they are in desperate need of prolonged and sustained interest rate cuts if there is to be a reduction in the alarming rate at which they are folding.

The Bank of England on Thursday served up a surprisingly large 150-basis points interest rate cut which also served to highlight the severity of the economic downturn.

For John Johnston, director of institutional sales at brokerage Seymour Pierce, it was too little, too late for smaller companies, particularly those with debt issues.

"They (the BoE's Monetary Policy Committee) are at least three months behind ... they should have been more proactive and now they're playing catch up," Johnston said.

Smaller companies, which usually lack the international focus which allows larger groups to hedge their risks across markets, have been hard hit in the downturn.

The effects of the credit crunch can be seen in figures from the Federation of Small Businesses (FSB), showing 280 smaller business are closing each week, up from 40 before the downturn.

Begbies Traynor, an insolvency practitioner, said its statistics showed a 16 percent quarter-on-quarter rise in businesses classed as having significant problems.

Executive Chairman Ric Traynor said rate cuts were imperative to kickstart a recovery, adding rates must come down and stay down before the real cost of borrowing for smaller companies falls.