The UK economy up until relatively recently has benefited from a prolonged period of sustained GDP growth, which averaged almost 3% pa between 1992 and 2008.

During this time, the underlying rate of inflation has remained close to the official target, a degree of price stability not seen since the 1950s, and consequently base rates have also stayed low and stable.

On balance, this has constituted a favourable environment in which to do business. Smoother business cycles mean that not only is profitability buoyant, but that the inherent economic risk is greatly reduced (see Effects of Stability and Low Inflation 6.2 Living with Low Inflation Stability and expectation)

This is borne out by the relatively low level of business failure experienced over the last decade.

There is no doubt that the recession which began in 2008 and which will probably end in the second half of 2009 has provided a major hiccup. But the signs so far are that the corporate sector, so far at least, has weathered the downturn far better than in the past.

Although company bankruptcies have been increasing, for instance, it looks likely that they will peak at a much lower level than in the previous recession. Profit warnings, too, have been less numerous this time around.

A major plus for companies is that in the current recession, although demand for products has been weak, interest rates and, therefore, the cost of debt servicing has been low. The previous recession saw falling demand and very high interest rates.

On the other hand, while the recession will in all probability have ended in the second half of 2009, the recovery phase could well be protracted, handicapped by a lack of finance from a struggling banking sector.

Once the recovery is in place, however, the probability is that the economic environment facing companies will be similar to the pre-recession world of low inflation, low interest rates and a stable economy. But only similar, not the same. With global conditions expected to be less advantageous in the medium term the chances are that the authorities will need to work harder to keep GDP growth close to trend.

On balance, growth rates and inflation rates are likely to be more variable than in the last decade and a half while interest rates may need to slightly higher (see 6.3 The Next Decade).

Even so, the UK economy should return to a pattern of shorter and shallower business cycles where the economic environment in itself will not be enough to create great swathes of business failures.

That is not to say that it will be plain sailing. Low inflation places more pressure on cash flow funds and it is much more difficult to grow the balance sheet year after year. There are now fewer quick fixes or easy wins.

Instead the relative success of commercial enterprises will return to depending rather more on trading conditions within individual product and services markets and rather less than on the economy in general.

As important, however, will be the attitude of government to business and the degree to which governments set out the regulatory environment. These will be key in ensuring that the UK is an attractive place to do business.