Mixed results from BCC’s Quarterly Economic Survey

The British Chambers of Commerce’s new Quarterly Economic Survey (QES) released today (Tuesday) shows that economic growth remains too weak. While the results for Q2 2012 suggest that businesses are growing, the pace is sluggish and inadequate for a sustainable recovery.

The new survey, comprising responses from 7,805 businesses, shows that while many of the balances are in positive territory suggesting growth, they are still below levels seen before the recession in 2007. However, the survey also shows that there has been a surprisingly good improvement in exporting activity, suggesting that businesses are looking to exporting as a source of growth.

Commenting on the results, John Longworth, BCC’s Director General, urged the government to take a bold and imaginative approach to boosting growth. He recommended measures including the creation of a state-backed business bank, and investment in infrastructure as critical to get the economy growing.

The survey results revealed that despite being in positive territory, domestic orders are weak and far from the pre-recession levels seen in 2007. Meanwhile, export activity has increased, particularly in the manufacturing and service sectors, the latter of which returned to a level last seen in Q1 2007.

There was a mixed picture on employment; 16 percent of manufacturing firms had hired in the last six months, the same as the last quarter, while the balance of service sector firms that had taken on staff rose six points to 10 percent.

Confidence among businesses remains lower than before the recession in 2007. In manufacturing, the balances measuring confidence in turnover and profitability rose, but in services, both balances remain unchanged on the last quarter.

Encouragingly, the survey showed welcome news that the balance of firms under pressure to increase prices has fallen to levels last seen in 2009/2010, due in part to a fall in raw material prices.

Yet inflation is still a big worry for many businesses – 37 percent of all firms reported it as a concern. Compared to Q1, the number of manufacturers concerned with exchange rates rose sharply from 38 percent to 52 percent, reflecting concerns around the impact of the eurozone crisis.

Commenting on the results, John Longworth, Director General of the BCC, said: “While domestic growth continues to bump along the bottom, the silver lining is an increase in firms looking for export opportunities, and in many cases, with countries outside Europe. Economic growth should be the government’s main priority. As the eurozone crisis rumbles on, businesses are feeling the effects, and so growth is still weak.

“Growth cannot wait. The government must take an imaginative and brave approach to stimulating the economy and helping businesses thrive. Headline grabbing u-turns on fuel duty are not enough to get the economy back on track. There must be a relentless determination to deliver Whitehall policies on the ground.

“The creation of a business bank, for example, would ensure that new and growing companies can access the finance they need to invest in new products and services, export to new markets, and take on more staff. Other measures such as renewed infrastructure investment could help insulate the UK from some of the risks in the eurozone. Creating robust rail, air, maritime, energy and digital networks will rely on new creative ways of attracting private finance. These projects could be privately funded or kick-started by the public sector, with pension funds and sovereign wealth funds able to purchase the assets when the projects are completed.”

David Kern, BCC Chief Economist, said: "In total, the Q2 2012 results indicate weak and inadequate, but still positive, UK growth. While disappointing, they raise questions over the accuracy of the ONS assessment that we are in technical recession. In the BCC's recent economic forecast we envisaged nil growth in Q2, and this survey points towards a small positive figure. With the Diamond Jubilee reducing the numbers of days worked in Q2, and early estimates showing renewed falls in the erratic construction sector, it is possible that official figures for Q2 2012 may show negative UK GDP growth for a third quarter in a row. There are still unresolved questions about the ONS estimate, but regardless of that it is clear that the UK economy faces major challenges, and growth is inadequate.

“Overcoming the obstacles precluding the return of our economy to normal growth will be difficult and will take time. UK businesses and consumers must realistically plan for a period of relatively low growth in the next few years, as fiscal austerity restores stability to our public finances and the eurozone’s problems create a challenging environment for our exports. But prospects will improve later in the year and in 2013, as falling inflation improves consumers’ disposable incomes, and our exporters persevere with efforts to diversify their sales into faster growing markets outside Europe."