Investors were happy, rivals were happy, even the schadenfreude brigade were happy yesterday. It seems Tesco pulled off that rare trick yesterday of satisfying both its fans and critics alike.

Like for like sales growth was down to the lowest level since 1993. Its boss Sir Terry Leahy talked about “new challenges” and “managing our balance sheet and cash carefully”.

The company's finance director Andrew Higginson talked about "painful" sales.

So that was good for those who like to see Tesco suffer. They can help themselves to a nice sip of boiling hot schadenfreude soup.

Yet it appears investors in Tesco were happy, too - with shares jumping 8 per cent on the news.

The truth is, things could have been worse - many had expected things to be worse - some had even warned of an imminent profits warning.

But you see, Tesco is another one of those companies that has been building itself a giant wooden horse. It reckons it has managed to pull in another 300,000 customers a week, thanks to big price cuts.

So, sales revenue may be lower than the company would have liked, but more customers mean more potential revenue in the future.

It is just that not everyone sees it that way. The Times reckons it has seen data supplied by TNS Worldpanel showing the giant retailer is losing customers to its big three rivals, Asda, Sainsbury's and Morrison.

It certainly seems to be the case that Tesco's sales growth was down on the other big supermarkets.

Apparently the Tesco Finest range took a battering.

Maybe the retailer's Achilles’ heel is that it is just so big, that it is more reliant on the performance of the economy than its rivals. It certainly seems there is little scope for Tesco to increase its market share.

Then again, there is no sulking in its tent. Andrew Higginson, Tesco's finance director, said: "Driving deflation into your business is painful in the short-term but we think it is the right path to be on and the good news is that customers are responding to it. Obviously we are heading into a recession and customers are very savvy and looking to save money."

But whichever way you look at it, the big supermarkets, and for that matter the not so big discount supermarkets, are sitting quite pretty.

It's the other retailers that have the problem, and you don't need the prescient skills of Cassandra to see it.

©2008 Investment and Business News. All Rights Reserved.

Banks are in the dock again - this time over lending to business. The trust between small business and banks has never been strong - now there is pressure to fix it. But there is more to it than that. Big business can do more to help, too. But actually, if you dig beneath the surface, entrepreneurial business really needs something more profound.

Here is an interesting tip for some readers of this publication who may be juggling with cash flow. If you provide work on a subcontracted basis for one of those large utility companies or phone companies that you happen to also use as a supplier, then see if you can manage this.

See if they will write off your gas or electricity bill, or telephone bill, or whatever it is your client also supplies to you, from your fee.

So, if you work for, say, a large telephone company and they owe you £3,000, and normally take, say, 3 months to pay their invoices, but you owe them £500 for your phone bill, see whether you can just reduce the amount of money they owe you to £2,500 and write the phone bill off.

Okay, we will save you the hassle, it won't work.

For many of the small businesses that make up the UK economy, cash flow, rather than profit and loss, is what counts. And it often seems that the bigger the client, the slower they are to pay.

Lloyds Bank has entered the debate, all guns firing, proclaiming its small business credentials. It says the government needs to put a little less pressure on the banks to be business friendly and instead look at the behaviour of big business.

John Maltby, the managing director of Lloyds TSB’s commercial bank asked: “What is happening to get more attention on those businesses not paying on time?”

If, by some miracle, the government manages it, and somehow the endemic attitude we have in the UK to drag out the payment of invoices changes, it will be a massive boost for small businesses.

While it was at it, Lloyds also revealed its own six-point charter for business.

As you know, one of the real problems many businesses have with their bank is that trust thing: the constant fear that the bank may suddenly, and apparently quite arbitrarily, cut the overdraft just at that point when it is most needed. So Lloyds has announced six measures, all designed to provide the kind of services that, actually, one would normally expect. So, for example, cuts in interest rates announced by the Bank of England will be passed on; there won’t be changes in overdraft facilities during the period of the agreement; and when the overdraft agreement comes to an end, the bank won't try and make changes to the terms if the agreement is then renewed. But this is the big one: Lloyds TSB says it will "agree to any reasonable request for short term finance and do what we can to support any viable business through temporary difficulties."

The government's other big bank, RBS, is making similar promises.

Of course, it is quite sad that this proved necessary. Trust has never been strong between banks and their small business customers - and it seems that it has taken this crisis to try and fix that.

This lack of trust also explains, in part, why there has been such an angry backlash against banks. Many entrepreneurs know what it is like to be let down by their bank, to have lending facilities reduced at the point when they are most needed. In some ways this has been a major problem with the UK for many years.

However, as has been argued here before, we can criticise the banks, but the real problem for entrepreneurs is that if they run a truly innovative business with bold ideas, then bank funding is essentially a flawed concept.

Most new businesses fail, therefore if banks were to support most new businesses, most loans would go bad.

Usually, however, more money is made by the handful of successful new businesses than is lost by the failed enterprises.

But banks get their remuneration via the interest rate they charge on the loans they provide to firms, so they don't enjoy an especially high return on the loans they make to the handful of really successful businesses to compensate them for failed businesses.

That is why debt financing for small entrepreneurial businesses never makes sense.

But for the economy as a whole, the more entrepreneurial businesses there are, the better, because when companies do succeed, the benefit they bring in terms of creating jobs and paying tax can be highly significant.

That is why a change is needed in the way entrepreneurial businesses are funded.

The UK is capable of innovating its way out of this crisis. Creativity and imagination within the workforce is there.

But creativity and imagination is required from the government, too.

That is why the policy of supporting the economy via attempts to boost spending is flawed. It is hard to see how a cut in VAT from 17.5 to 15 per cent is going to make that much difference. After all, retailers are slashing prices by 20 per cent or more. Smaller retailers agree that the administration cost of implementing the VAT cut virtually cancels out the benefit. But the real snag with the cut in VAT is that the money just goes - it disappears.

If the UK is going to borrow its way out of recession, this only makes sense if the borrowed money creates something that will generate benefits years ahead.

But the politicians and economists who determine policy really have little idea of what it is like to be an entrepreneur - they have little idea of the difficulty involved in predicting which businesses will succeed and which will fail; they have even less of a clue about the randomness of innovation.

The Law of Unintended Consequences should be one of the most important laws in all economic text books. If you fund a small number of businesses you have no idea if the strategy will work, but if you provide funding to thousands of businesses you can be sure some will be very successful indeed - the Law of Unintended Consequences is unpredictable on a micro basis but predictable on a macro basis.

Only by understanding these principles will the government be able to orchestrate a true economic recovery.

©2008 Investment and Business News. All Rights Reserved.

All of a sudden banks have been surprisingly generous. If you have a good credit record, and can afford a healthy deposit, then there really are some good deals out there - really good deals.

According to today's Telegraph, some banks are offering mortgage customers new deals charging just 2 per cent. It highlighted the example of one building society which has written to 15,000 borrowers currently using tracker mortgages, and offered them a variable deal charging an introductory rate of just 1.99 per cent.

How generous is that?

Of course, it is not a new trick. The Greeks tried a similar tactic when they were besieging Troy, and all those subprime lenders earlier this decade were not immune to trying the odd Trojan Horse.

But this time, it seems that the rationale is slightly different.

With rates set to fall, banks are trying to get customers off those mortgage trackers and put them on deals which carry a minimum mortgage rate. The case described in the Telegraph has a minimum rate of 2.75 per cent, which will apply once the cheap introductory period is over.

Now, normally, we would all be delighted with a 2.75 per cent mortgage - but don't forget that if we enter a period of deflation, then actually, in real terms, a 2.75 per cent interest rate could be quite high. Don’t forget, official interest rates could fall to zero.

Meanwhile, the Council of Mortgage Lenders has been busy making warnings. Michael Coogan, Director General at the CML, spoke out at his organization's annual conference.

"Can this downward trend in the last 12 months be reversed so that we reach 2007 levels of lending next year as the government has insisted?" asked Mr Coogan.

He answered his own question, and the answer was simple enough: "no."

He added: "While there is pent-up demand in a number of areas of the market, consumer borrowing will simply not return to the levels seen in 2007, even if funds increased and a wide variety of lenders were to become active in the market again. In fact, unless government takes further targeted action to help market participants, we will see a worsening of the picture next year compared to this."

Mr Coogan also said that we have returned to mortgage rationing. He said: "My estimate is that demand is much closer to supply, and at much lower levels of activity. This is because of the external impacts of mortgage rationing which we have seen - house builders not able to build, estate agents reporting record low numbers of sales, and substantial numbers of mortgage intermediaries exiting the market. Consumer sentiment has been increasingly affected by house price falls, and growing fear of unemployment.

"First time buyers have been virtually squeezed out of the market because of the new deposit requirements. Even the Bank of Mum and Dad can't afford the higher deposits as lenders' tighter credit requirements have accelerated faster than falling house prices.

"So, because there are fewer active lenders, with access to less money, we have in effect returned to mortgage rationing."

But we will leave you with this thought. There is a danger, you know, in the government pushing mortgage lenders to return to 2007 levels. There is only so much money in the pot - every penny lent to mortgage holders is a penny less for business.

©2008 Investment and Business News. All Rights Reserved.

Investors were happy, rivals were happy, even the schadenfreude brigade were happy yesterday. It seems Tesco pulled off that rare trick yesterday of satisfying both its fans and critics alike.

Like for like sales growth was down to the lowest level since 1993. Its boss Sir Terry Leahy talked about “new challenges” and “managing our balance sheet and cash carefully”.

The company's finance director Andrew Higginson talked about "painful" sales.

So that was good for those who like to see Tesco suffer. They can help themselves to a nice sip of boiling hot schadenfreude soup.

Yet it appears investors in Tesco were happy, too - with shares jumping 8 per cent on the news.

The truth is, things could have been worse - many had expected things to be worse - some had even warned of an imminent profits warning.

But you see, Tesco is another one of those companies that has been building itself a giant wooden horse. It reckons it has managed to pull in another 300,000 customers a week, thanks to big price cuts.

So, sales revenue may be lower than the company would have liked, but more customers mean more potential revenue in the future.

It is just that not everyone sees it that way. The Times reckons it has seen data supplied by TNS Worldpanel showing the giant retailer is losing customers to its big three rivals, Asda, Sainsbury's and Morrison.

It certainly seems to be the case that Tesco's sales growth was down on the other big supermarkets.

Apparently the Tesco Finest range took a battering.

Maybe the retailer's Achilles’ heel is that it is just so big, that it is more reliant on the performance of the economy than its rivals. It certainly seems there is little scope for Tesco to increase its market share.

Then again, there is no sulking in its tent. Andrew Higginson, Tesco's finance director, said: "Driving deflation into your business is painful in the short-term but we think it is the right path to be on and the good news is that customers are responding to it. Obviously we are heading into a recession and customers are very savvy and looking to save money."

But whichever way you look at it, the big supermarkets, and for that matter the not so big discount supermarkets, are sitting quite pretty.

It's the other retailers that have the problem, and you don't need the prescient skills of Cassandra to see it.

©2008 Investment and Business News. All Rights Reserved.

To be honest, the latest news from the British Retail Consortium and Nielsen on High Street inflation is a tad surprising.

Annual shop price inflation is down from 3 to 2.7 per cent in October, with both food and non-food annual inflation down.

But drill down, and considering that all we seem to be hearing about at the moment is news on the latest High Street sale, the month on month figures were not what we would have expected.

Food prices rose last month by 0.3 per cent, compared with a 0.1 per cent fall the month before. Fresh food prices were flat in the month, but ambient food rose by 0.7 per cent.

The BRC says: “This is because the ambient food category is more susceptible to fluctuations in the cost of energy. The rise in inflation is likely to be the result of the oil bubble causing higher gas and electricity prices.”

Presumably then, as cheaper oil shows up in gas and electricity prices, ambient prices will fall too.

As for non food, prices were up 0.1 per cent on last month, with DIY, Gardening & Hardware, and Books, Stationery & Home Entertainment putting in the highest rises; electrical products saw the biggest falls

The real headline, however, goes to the fall in commodity prices seen over the last three months, and it really is staggering:

It seems reasonable to assume that prices across the High Street at large will follow the falling commodity prices down the line.

Actually, we are now seeing two conflicting forces at work. Cheaper sterling is pushing up import prices, but prices are falling anyway across the world. So far, the worldwide fall in prices has been greater than the fall in sterling - so we are still benefiting from collapsing commodity prices.

Not all companies have woken up to the reality of credit crunch Britain - some, especially service providers, are even trying the tactic of upping prices as a way of maintaining profitability.

The reality, though, is that falling demand will drag prices down, and those companies that are slow to realize this, and try to maintain price levels, will be the ones that will lose business faster.

©2008 Investment and Business News. All Rights Reserved.