The British Chambers of Commerce (BCC) has said that the results of its first quarter economic survey show that the UK’s economic recovery is still on course but the “recovery is weak and serious risks of a setback remain”.
Its survey of 5,500 businesses found that most of its key indicators were now positive, including an improved performance from the service sector and evidence that manufacturers’ export orders are up.
However, the manufacturing sector as a whole remains troubled, with stagnant sales and orders still negative. Employment in the sector over the last three months declined steeply, to -16 on the BCC's measure from +3 in the fourth quarter of last year.
Cashflow and investment in plant and machinery remained negative.
The business group is forecasting growth at a slower pace of 0.2% in the first quarter, compared with 0.4% in the final quarter of 2009, when the UK first emerged from recession.
David Frost, BCC director general, said: “Although these results are mixed, they contain some positive features - most notably the service sector’s improvement and relatively strong export balances for manufacturers.
“Businesses are showing resilience despite difficult and uncertain trading conditions. Confidence is building, and the government must nurture this with well-thought out policies that support business growth and job creation. Special attention must be paid to bolstering our exports in goods and services, which will help rebalance the economy away from an over-reliance on debt and the public sector.”
David Kern, chief economist at the BCC, said: “These results support the view that GDP growth stayed positive in Q1, but the recovery is set to remain fragile and sluggish. While the upturn in the service sector is gradually gathering momentum, the manufacturing sector is still struggling to enter the recovery phase.
“It is disturbing that the measures for investment in plant and machinery have worsened, and are still negative across both manufacturing and services. Unless the sharp declines in capital investment are reversed, the UK’s productivity will plummet further and the economy will lack the capacity to meet growing demand when the recovery gains momentum.”
Frost said the next government should scrap the planned 1% rise in employers’ National Insurance and replace it with a “less damaging” 1% hike in VAT, while Kern said the “new government must produce a more credible medium-term plan for cutting the country’s huge Budget deficit and reducing spending”.
“This will strengthen Britain’s credit rating, make it easier for the MPC to keep interest rates low for a prolonged period, and underpin the recovery,” he added.
© Crimson Business Ltd. 2010