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UK — Double-dip avoided but risks to the economy remain

07 April 2010

Results from the First Quarter of 2010 British Chambers of Commerce Economic Survey, show that the UK's upturn is still on course and the economy has not slipped back into recession. However, the recovery is weak and serious risks of a setback remain.

Data from over 5,500 businesses show that the service sector's performance is improving, with most indicators now positive and making gains on the previous quarter. The results in manufacturing are disappointing with too many key measures worsening, and several still in negative territory.

Highlights from the Q1 QES include:
  • Confidence, although weak by pre-recession standards, is firmly in positive territory confirming businesses' resilience in the aftermath of the recession.
  • Exports have mostly improved and remain strong for manufacturing. Export orders grew from +17 in Q4 to +21 in Q1, a highlight of this quarter's survey.
  • Worryingly, critical indicators such as investment in plant and machinery and cash flow are still negative across both sectors.
  • In manufacturing, the key domestic measures point to stagnation in Q1, with sales barely positive and orders still negative. In services, both sales and orders have turned positive.
  • Employment over the last three months in manufacturing has recorded a large decline. It has moved back into negative territory from +3 in the fourth quarter to -16 in Q1.
Commenting on the results, David Frost, Director General of the British Chambers of Commerce, said "although these results are mixed, they contain some positive features, most notably the service sector's improvement and relatively strong export balances for manufacturers."

"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. 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."

"Whatever the result of the General Election, a new Government must avoid additional business taxes that could stifle recovery. Within the first 90 days of a new administration, the 1% hike to employers' National Insurance Contributions, planned for 2011, should be scrapped and replaced by a less damaging 1% rise in VAT."

"With companies facing an extra 25.6 billion Pounds in costs stemming from new employment laws and taxes over the coming four years, there should also be a three-year moratorium on any new employment legislation. These are measures that will boost confidence and investment, create jobs and drive recovery over the long-term."



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