British Chamber of Commerce warns economy remains at risk of relapse.
A British Chamber of Commerce (BCC) economic survey has suggested the UK saw further growth in Q2 2010, but it warns that underlying weaknesses in the economy remain, which must be addressed if the country is to avoid a relapse into recession.
Key indicators on business conditions, such as employment expectations, investment plans, export orders, and domestic sales – in both the manufacturing and service sectors – made gains in Q2.
Yet, despite these encouraging results, the BCC has highlighted sluggish growth in the service sector as a serious concern, also emphasising the 80 percent of manufacturers who have reported an increase in the cost of raw materials, adding to price pressures.
The economic data, collected from over 5,600 businesses across every region of the country, was released just two days ahead of the Monetary Policy Committee’s July interest rate decision.
The most positive results from the Q2 QES survey were a 35 point surge in manufacturing employment to plus 19 percent, a 29 point rise in manufacturing home sales to plus 30 percent and an increase in manufacturing export sales of 11 points to plus eleven percent.
The main negative points were a surge in reports of an increase in the price of raw materials and a continuing negative services cash flow, despite a six point rise, at minus three percent.
BCC director general David Frost said: “On the whole these results are positive, especially in manufacturing, and they should offer encouragement that the UK’s recovery remains on the right track.
“We still have concerns about sluggish growth in the service sector, which emphasises why the Government must continue to promote the best possible business environment, in order to help companies invest and grow. Furthermore, with around 80% of manufacturers reporting that they are under pressure to increase prices, there is potentially a big issue bubbling under the surface.
“With very austere times ahead, no one should kid themselves into thinking that the UK’s economic recovery is totally secure. There will need to be an unwavering focus on ensuring business is able to deliver growth, create jobs, and drive a lasting recovery. Interest rates will have to stay low for longer, burdensome new employment red tape must be blocked, and we will have to generate growth across all regions of the country.”
BCC chief economist David Kern added: “The UK’s economic recovery is consolidating, and these results support the view that GDP growth strengthened in the second quarter of 2010. However, the recovery is fragile and is not yet secure.
“Despite an improvement in manufacturing, the sector still faces serious risks. Given the sector’s poor long-term historical record, it is much too early to conclude that we are now seeing a sustainable manufacturing upturn. The service sector, which accounts for the bulk of GDP in the UK, is not recovering at an adequate pace and this heightens the threat of an economic setback.
“This quarter’s poor cash flow data, in both manufacturing and services, indicates that many businesses are still facing serious financial difficulties. Investment and confidence levels remain disappointing across all sectors.
“Many of the factors driving growth this year, mainly stock building and the continued effects of the policy stimulus, are only temporary. As a result, the threats of a relapse remain serious, and countering these threats to growth must remain a priority for policymakers.
“As the Government has now embarked on the vital task of curbing the UK’s unsustainable budget deficit, it is essential to create the right business conditions that will enable wealth creating companies to drive a lasting recovery – with a rebalanced economy focused on investment and exports at its heart.”