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12-10-2010   

Every key indicator for the service sector, such as employment expectations and investment, weakened in the past 3 months, according to the BCC’s latest quarterly survey. Manufacturing fared better, pointing to some rebalancing of the service-reliant economy, but overall the survey of 5,300 businesses proved “disappointing”, the BCC said.

The organisation repeated its call for the Bank of England to increase its quantitative easing (QE) programme from £200bn to £250bn before the end of the year, in order to put the economy in the best position to withstand the impact of public sector cuts and January’s VAT rise. Gross domestic product (GDP) growth is likely to have already slowed “at best” 0.5% in the third quarter, from the surprisingly robust 1.2% recorded in the previous three months, David Kern, the BCC’s chief economist, predicted ahead of official data.

“We are still growing, the recovery continues, but it’s slowing down, even before the big cuts are starting,” he said. “These results show the importance of making sure the economy is ready when the biggest measures start to hit.”

The survey showed the service sectors balance for the UKK orders fell significantly on the previous quarter, dropping into negative territory, as confidence deteriorated.

The sector’s expectations for employment also declined, suggesting firms could struggle to soak up public sector job losses in coming months. However, manufacturer’s employment balance was at its strongest level since the survey began in 1989. Confidence that turnover would improve over the next year also rose among manufacturers, although optimism over future profitability did not keep pace.

Cash flow data was “worryingly weak” for both sectors. Looking ahead, the BCC said it supported the Government’s austerity measures, but that is was possible the cuts would have to be reviewed next year as they start to bite.

“We don’t think at the moment that the Government should reconsider its basic fiscal programme,” said Mr Kern. “The only thing that would really justify a review would be if the economy goes into decline and stays there.”

In addition to the call for more QE, David Frost, the BCC director general, urged the Government to ease conditions for business, citing the “relentless” flood of new employment legislation. The burden would endanger the private sector’s ability to counter public sector unemployment, he said.

Separately, the Organisation for Economic Co-Operation and Development said its latest composite leading indicators – which aim to predict economic developments – pointed “strongly to a downturn” in the UK.