BCC reports signs of looming recession

08 July 2008 / by Daniela Gieseler
Britain is in serious danger of sliding into recession with the services and manufacturing sector reporting a significant slump in output in the second quarter of 2008, according to research by the British Chambers of Commerce (BCC).

The survey, which was conducted among 5,000 companies throughout the country, presents the strongest evidence so far that conditions are at their worst since the last recession in the early 1990s.

It reveals that the majority of businesses experienced sharp falls in sales, orders and confidence in the last quarter, and that rising fuel, food and raw material prices forced them to cut down on investments and to raise prices.

The BCC's findings also add to fears of rising unemployment, showing that over the last quarter employment figures in the service sector fell to their lowest since 1993; and a separate survey by the Recruitment and Employment Federation found that businesses' demand for permanent staff was falling for the first time in five years.

Figures presented by the Office of National Statistics (ONS) yesterday confirmed the gloomy outlook, showing an unexpected fall in manufacturing output by 0.5 per cent from the previous month, and by 0.8 per cent from this time last year.

The wider measure of industrial production, which incorporates output from utilities, mining and North Sea oil, experienced an even bigger slump by 0.8 per cent in May, down by 1.6 per cent from the year before.

"These results show a real risk of recession in the coming months," David Frost, the BCC's chief economic advisor, warned. "This is obviously deeply worrying, not just for business, but for the consumer too."

He continued: "The outlook is grim, and we believe that the correction period is likely to be longer and nastier than expected."

The report added that if these trends continue, the business sector is only three months away from technical recession, while economists confirmed that the manufacturing sector was probably already in a technical recession, and predicted a further drop in output for the last quarter.

The reports will increase pressure on the Bank of England to cut interest rates; however, the Bank is expected to refuse in order to rein-in the growth in inflation.

David Kern appealed to the bank to "resist misguided calls" for higher interest rates and to take action immediately: "A major recession can still be avoided but forceful measures are needed to improve confidence."

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