Double-dip is avoided but growth weak

BRITAIN has managed to avoid the dreaded double-dip but the recovery remains weak and still faces serious risks, the British Chambers of Commerce (BCC) will say today in its first quarter economic survey.

Encouragingly, the results show that the performance of the services sector is improving with most indicators now positive and making gains on the previous quarter. Small firms couldn’t improve their domestic and export sales while large companies saw sales increase across the board.

But while the services sector was making steady gains, the manufacturing sector indicators have been disappointing. The first quarter domestic manufacturing balances signal stagnation, with the employment indicator recording a sharp decline to -16 per cent. In contrast, the service employment balance rose six points, to three per cent, its highest level since the second quarter of 2008.

The BCC said that it was worrying that critical indicators such as investment in plant and machinery and cash flow are still negative across both sectors.

The BCC said: “Unless the sharp declines in capital investment are halted and reversed, UK productivity will plummet further, and the economy will lack the capacity to meet growing demand when the recovery eventually gathers momentum.”

David Frost, director general of the BCC, said: “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.”

He added: “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.”

The BCC’s chief economist David Kern urged the MPC to maintain an expansionary stance to reduce the risk of an economic setback. He also called on the government to produce a more credible medium-term plan for cutting the 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.