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Recession not inevitable, but economy shows stagnation

The economy shows signs of stagnation in early 2012, although recession is not inevitable.

Those are the findings of the British Chamber of Commerce’s Quarterly Economic Survey, which questioned over 6,000 businesses.

It found that expectations for the next three months have “significantly weakened,” however the results are not as bad as those seen in the worst phase of the last downturn.

The report suggests there is cause for concern over evidence that the improvements in 2012 and early 2011 have largely been cancelled out.

John Longworth, director general of the BCC, said: “A new recession is not a foregone conclusion. However, action is needed urgently to tackle short-term stagnation and a lack of business confidence, damaged by the ongoing eurozone crisis.

“A slowdown across the eurozone is inevitable, but Britain need not suffer a similar fate. We simply cannot afford to compromise on economic performance. The UK does have the potential to recover and make its way in the world. We have the talent, the energy, and the enterprise.

“All we need is an environment that puts business first. We must recognise that business is good for Britain. Boosting growth in our businesses will boost the economy and let Britain lead on the international stage.

“Ministers need to move faster on promises made in the Chancellor’s Autumn Statement. Measures to improve the flow of credit to businesses, reforms of our complex planning system, and investment in infrastructure projects are all needed now.

“If the implementation of the credit easing programme takes much longer, the economy would be better served by the creation of a full blown SME bank. On infrastructure, the government must bite the bullet and move ahead on high speed rail, airport expansion, toll roads and liberalisation of the planning system.

“Britain’s economy is at a critical stage, and now is not the time to shy away from the radical decisions needed to inspire confidence and increased investment for years to come.”

Among some of the indicators, export activity was shown to have declined, and firms were not optimistic about recruitment, as expectations in the manufacturing sector plummeted 18 points.

In the service sector, turnover confidence fell by almost 20%, and cashflow management also remained challenging for firms.

David Kern, BCC Chief Economist, said: “The results point to a worsening in the economic situation, with signs that the UK recovery is stalling. The survey shows stagnation in manufacturing and minimal growth in services in Q4 2011.

“The forward-looking home order balances moved deeper into negative territory, and highlight risks of declines in domestic activity early in the New Year. We believe UK GDP will stagnate overall until mid-2012, with one quarter very likely in negative territory.

“A fall in employment expectations points to risks of rising unemployment over the next year. We are predicting an increase in the UK jobless total to 2.77 million by the end of 2012. Recession is still avoidable, but risks of a setback have increased.

“Most export balances are still positive. But the worsening international situation and the growing risks facing the eurozone will cause UK exporters difficulty.

“With confidence falling, every effort must be made to avert recession. We expect the MPC to announce a £50 billion increase in the QE programme, to £325 billion, early in 2012. But QE will not achieve its full potential in supporting growth unless supplemented by the early introduction of a sizable and effective credit-easing programme.

“As well as reallocating spending priorities, the government must act urgently to cut red tape and contain increases in business rates.”

This was posted in Bdaily's Members' News section by Tom Keighley .