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News - 13 July 2008
It doesn't have to be like this

Reasons to be cheerful- recession is not inevitable

The British Chambers of Commerce (BCC) warns that alarming results highlight serious risks of UK recession but it is not too late to avert it. However, time is running out and the Government needs to act quickly.

The BCC (Q2) Quarterly Economic Survey received a record response with nearly 5000 businesses, large and small, taking part. The results are ominous and show serious risk of recession in the UK, with some results hitting historically low levels in the manufacturing and service sectors.

If these trends continue, the UK business sector will be in recession in three months time. In particular, the critical UK domestic balances for home sales and orders recorded negative growth in the last three months in both manufacturing and services.

Other key results from the survey show:

  • Cashflow in negative territory and at record lows, showing the credit crunch and rising costs have now hit business
  • All the confidence balances fell sharply in both manufacturing and services, a very worrying development
  • Service sector hit harder than manufacturing, seeing even bigger declines overall
  • Key service sector balances are at their lowest level since the recession of the early nineties including: home sales and orders, employment expectations, and confidence balances

The BCC believes that the correction period is likely to be longer and worse than anticipated

Commenting on the Q2 2008 Quarterly Economic Survey, Director General of the British Chambers of Commerce David Frost, said, “These results show a real risk of recession in the coming months. This is obviously deeply worrying, not just for business but for the consumer too, with both manufacturing and services reporting negative results. The temptation for the Government will be to raise business taxes in the next PBR because the exchequer is running out of money. This would be a catastrophe.

“I am sending Alistair Darling and Gordon Brown a strong message from the businesses I meet every day up and down the country: to put more pressure on business would not only restrict growth and hit the consumer hard, it would further crush what our economy is based on – confidence.”

David Kern, Economic Adviser to the British Chambers of Commerce, said, “The Q2 results signal a menacing deterioration in UK prospects. We are now facing serious risks of recession. For the first time in many years, the vital results for domestic sales and orders, and for cashflow, have moved into negative territory for both manufacturing and services. The outlook is grim, and we believe that the correction period is likely to be longer and nastier than anticipated.

"Some key results, mostly in services, are at historically low levels not seen since the recession of the early-1990s. The threats facing the economy will be exacerbated by plunging confidence across both sectors. Overall, the Q2 results point to growing risks of outright falls in UK output in at least one or two quarters.

"Intention to raise prices remains high, rising to a new peak in manufacturing and easing only slightly in services. Businesses are in a lose-lose situation.

Falling demand and the squeeze on consumer disposable incomes will limit how far prices can be increased.

"The MPC faces difficult choices. But immediate threats to growth are more alarming than dangers of higher inflation. The sharp deterioration in the cash flow balances of both sectors to record lows heightens threats of a serious credit crunch. An increase in rates at the present time would weaken further the banking sector, and would endanger the smooth flow of finance to business.

"A major recession can still be avoided, but forceful measures are needed to improve confidence. The MPC must resist misguided calls for higher interest rates. Indeed, if wage pressures remain muted, the option of early interest rate cuts must be considered. On its part, the Government must alleviate acute business concerns over new taxes and regulations, and must stand ready to support vulnerable small businesses."

Read related items on:
British Chamber of Commerce
Frost. David
Kern, David

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