Britain Facing 'Serious Risk' Of Recession

Britain is facing a "serious risk" of recession, according to the British Chambers of Commerce.

The Quarterly Economic Survey received a "record response" with nearly 5,000 businesses, large and small taking part.

The BCC has warned that "if these trends continue", the UK business sector is now "only one quarter away from "technical recession".

Other key results shows cashflow in negative territory at "record lows" showing the credit crunch and rising costs have now hit businesses.

The service sector has been hit harder than manufacturing, seeing even bigger declines overall.

Unemployment is also set to rise by 300,000 by the end of next year.

To add to homeowner woes, Nationwide has reported that prices fell for the eighth month in a row during June to stand 6.3% below their level 12 months ago.

The report stated: "The Q2 2008 results are ominous, and highlight serious risks of UK recession. Most balances have recorded sharp falls, and some are at historically low levels."

Commenting on the Q2 survey, Director General of the British Chambers of Commerce David Frost, said: "This is obviously deeply worrying, not just for business but for the consumer too, with both manufacturing and services reporting negative results. The temptation for the Government will be to raise business taxes in the next PBR because the exchequer is running out of money. This would be a catastrophe.

"I am sending Alistair Darling and Gordon Brown a strong message from the businesses I meet every day up and down the country: to put more pressure on business would not only restrict growth and hit the consumer hard, it would further crush what our economy is based on – confidence."

David Kern, Economic Advisor to the British Chambers of Commerce, said: "The Q2 results signal a menacing deterioration in UK prospects. We are now facing serious risks of recession. For the first time in many years, the vital results for domestic sales and orders, and for cashflow, have moved into negative territory for both manufacturing and services. The outlook is grim, and we believe that the correction period is likely to be longer and nastier than anticipated."

George Buckley, Chief UK Economist at Deutsche Bank said "current rates of growth were similar to the early 1990s".

Some economists believe that the chances of a recession in the UK are 50:50.

However, Mr Kern said "a major recession can still be avoided" but "forceful measures are needed to improve confidence".

He added that if "wage pressures remain muted", the option of "early interest rate cuts might be considered".

"On its part, the Government must alleviate acute business concerns over new taxes and regulations, and must stand ready to support vulnerable small businesses," he said.

(DS)