BCC: UK economy struggling to enter recovery phase

Britain “on the brink” of leaving recession, but there’s no sign of robust growth during the final quarter of 2009.

The British Chambers of Commerce (BCC) has published the results of its fourth quarter economic survey, concluding that the UK economy is “on the brink of leaving recession” despite the lack of conclusive evidence of “any robust and significant growth during the fourth quarter of 2009.”

The survey points to “disappointingly feeble” domestic balances, with “disturbing weaknesses” facing the UK service sector as a whole. The BCC report commented such frailties “must be remedied to enable the UK to attain a sustainable recovery.”

“As the UK embarks on the huge task of repairing its public finances, further supportive measures are needed to enable businesses to sustain recovery and avert a dangerous relapse,” says the report. “The welcome improvement in export balances, particularly for manufacturing, must be nurtured in order to strengthen Britain’s position
in world trade.”

Commenting on the results, David Frost, director general of the BCC, said:
“Although these results are not as impressive as hoped, they do contain some positive features - most notably strong improvements in employment and exports within the manufacturing sector.”

“Businesses are showing resilience despite difficult and uncertain trading conditions. Confidence is improving, and the boost in exports must be nurtured in order to strengthen Britain’s trade position globally, and to help rebalance the economy away from an over-reliance on the public sector.”

“It is vital that the government now demonstrates a determination to support wealth-creating companies in 2010. Additional business taxes must be avoided, and the 1% increase to employers’ National Insurance Contributions planned for 2011 should be scrapped.”

”Unless the private sector is given the freedom to create jobs and wealth, the UK’s economic recovery will be slower than it should be, and we will face the serious risk of a double-dip recession.”

David Kern, chief economist at the BCC, added: “With improvements in most key national indicators, the Q4 results support the view that we are on the brink of leaving recession. However, with a number of critical measures still in negative territory, the economy is struggling to enter the recovery phase.”

“All the Q4 domestic indicators are disappointingly feeble, especially in the service sector. Negative balances for investment in plant and machinery highlight the risks to Britain’s productive potential if sharp falls in business capital spending are not reversed.”

“The continuing need to improve access to finance for credit-worthy businesses is confirmed in the survey’s cashflow balances, which are barely positive for manufacturing, and have actually moved deeper into negative territory for services.”

“With current pressures on capacity modest, and price pressures muted, the Monetary Policy Committee can afford to maintain an expansionary stance, so as to reduce the risk of a double-dip recession. The government must also play its part, and strengthen Britain’s AAA credit rating by urgently producing a more credible medium-term plan for cutting the country’s huge budget deficit, and restraining public spending.”