The Guardian :
Manufacturing exports slumped at the end of last year, and will continue to suffer in 2016, leaving Britain with a two tier economy that relies on consumer spending to drive growth, a leading business group has warned.
The British Chambers of Commerce said a survey of 7,500 firms found that manufacturing fared worse than the services sector and was “close to stagnation” after domestic and export sales fell to below their pre-recession levels in 2007.
The BCC said that without government action to improve workers’ skills, upgrade outdated infrastructure, and allow small firms access to the same cheap credit available to major businesses, “the UK economy could suffer negative consequences in the face of increasing global uncertainty”.
The finding – which echoes official figures showing a contraction in factory output at the end of last year – came after analysts said the impact of government spending cuts, jittery world markets and the prospect of an EU referendum vote had dragged down expectations of UK services growth this year.
The services sector, which accounts for more than three-quarters of economic activity and ranges from shops and hotels to banking, maintained its solid growth in the run-up to Christmas, but the Markit/Cips survey found that expectations for business activity over the next 12 months were the weakest for almost three years.
The UK services business activity index, a single-figure measure tracking the health of service companies, fell slightly in December to 55.5, from 55.9 in November. It remained just above the long-run survey trend level of 55.2, with a reading above 50 indicating expansion and below contraction.
Chris Williamson, chief economist at Markit, said the sector had put in a solid performance and provided enough impetus to make it likely that GDP growth was 0.5% in the last quarter of the year, slightly above the 0.4% registered for the third quarter.
But he warned that “a rosy outlook” was not guaranteed, saying: “With business expectations about future workloads dropping to the lowest for almost three years, firms are becoming more cautious in the face of growing uncertainties. The cost impact of the living wage, government spending cuts, a potential hike in interest rates, global economic growth jitters and, of course, Brexit are all weighing on business minds and pose significant downside risks to economic growth in 2016.
“The pace of hiring has already slowed accordingly as firms scale back expansion plans in what might be seen as a warning shot to those taking a complacent view of economic prospects for the coming year.”
The BCC called on the Bank of England to keep interest rates low to protect small and medium-sized businesses from higher borrowing costs. It has also called on ministers to help firms get access to finance to support investment.
The survey found that export sales declined in the last quarter by nine points to +1%, the lowest level since Q3 2009, while export orders also fell to +1%. The balance of services firms that said orders increased or dropped also fell, though by only three points to +15% – the lowest level since 2011.
David Kern, the BCC’s chief economist, said: “While we must not forget the strengths of the UK economy – with higher growth than in most G7 economies and with a dynamic and flexible labour market – the recovery is still fragile. Given the global uncertainties, it is important to avoid unnecessary risks. Though wage pressures are rising, inflation is likely to remain below target over the next 18 months, and the MPC [the Bank’s monetary policy committee] should keep interest rates at their current low levels for the time being.”
Manufacturing exports slumped at the end of last year, and will continue to suffer in 2016, leaving Britain with a two tier economy that relies on consumer spending to drive growth, a leading business group has warned.
The British Chambers of Commerce said a survey of 7,500 firms found that manufacturing fared worse than the services sector and was “close to stagnation” after domestic and export sales fell to below their pre-recession levels in 2007.
The BCC said that without government action to improve workers’ skills, upgrade outdated infrastructure, and allow small firms access to the same cheap credit available to major businesses, “the UK economy could suffer negative consequences in the face of increasing global uncertainty”.
The finding – which echoes official figures showing a contraction in factory output at the end of last year – came after analysts said the impact of government spending cuts, jittery world markets and the prospect of an EU referendum vote had dragged down expectations of UK services growth this year.
The services sector, which accounts for more than three-quarters of economic activity and ranges from shops and hotels to banking, maintained its solid growth in the run-up to Christmas, but the Markit/Cips survey found that expectations for business activity over the next 12 months were the weakest for almost three years.
The UK services business activity index, a single-figure measure tracking the health of service companies, fell slightly in December to 55.5, from 55.9 in November. It remained just above the long-run survey trend level of 55.2, with a reading above 50 indicating expansion and below contraction.
Chris Williamson, chief economist at Markit, said the sector had put in a solid performance and provided enough impetus to make it likely that GDP growth was 0.5% in the last quarter of the year, slightly above the 0.4% registered for the third quarter.
But he warned that “a rosy outlook” was not guaranteed, saying: “With business expectations about future workloads dropping to the lowest for almost three years, firms are becoming more cautious in the face of growing uncertainties. The cost impact of the living wage, government spending cuts, a potential hike in interest rates, global economic growth jitters and, of course, Brexit are all weighing on business minds and pose significant downside risks to economic growth in 2016.
“The pace of hiring has already slowed accordingly as firms scale back expansion plans in what might be seen as a warning shot to those taking a complacent view of economic prospects for the coming year.”
The BCC called on the Bank of England to keep interest rates low to protect small and medium-sized businesses from higher borrowing costs. It has also called on ministers to help firms get access to finance to support investment.
The survey found that export sales declined in the last quarter by nine points to +1%, the lowest level since Q3 2009, while export orders also fell to +1%. The balance of services firms that said orders increased or dropped also fell, though by only three points to +15% – the lowest level since 2011.
David Kern, the BCC’s chief economist, said: “While we must not forget the strengths of the UK economy – with higher growth than in most G7 economies and with a dynamic and flexible labour market – the recovery is still fragile. Given the global uncertainties, it is important to avoid unnecessary risks. Though wage pressures are rising, inflation is likely to remain below target over the next 18 months, and the MPC [the Bank’s monetary policy committee] should keep interest rates at their current low levels for the time being.”
