By Peter Griffiths
LONDON Oct 11 Britain's economy risks slipping
back into recession after barely growing in the third quarter, a
business group said on Tuesday, as data showed that
manufacturers are running out of steam.
The British Chambers of Commerce (BCC), which represents
companies employing one in six UK workers, said the Bank of
England's latest asset purchase programme may not be enough to
avert a double-dip recession.
The business group estimated that the economy grew by
between 0.1 percent and 0.3 percent in the third quarter and
warned that the downside risks were growing due to the euro zone
debt crisis and worries about global demand.
"We can avoid a recession, but this relies on the government
making some tough policy choices," said BCC Director General
John Longworth. "The survey shows the real risks facing the
economy and the need for the government to act now."
The BCC said Britain's Conservative-led coalition government
was right to stick to its austerity plan to cut a bloated budget
deficit, but it must also take "radical" steps to stimulate
growth through business-friendly policies.
Despite record low interest rates of 0.5 percent, Britain's
economy has stagnated for nearly a year. Inflation of nearly 5
percent is squeezing people's living standards as wages rise
slowly and unemployment has started to increase again.
"We're facing one of the toughest trading conditions this
country has seen for decades," Phil Clarke, head of the
country's biggest retailer Tesco said on Tuesday.
The government is cutting public spending to erase a budget
deficit that peaked at nearly 11 percent of output and has
little scope for tax cuts or extra spending to boost growth.
The Institute for Fiscal Studies said on Tuesday that the
median income in Britain is expected to fall by 7 percent in
real terms between 2010 and 2013, the largest three-year drop
for 35 years.
That would push an extra 600,000 children and 800,000 adults
into poverty, the thinktank said in a report.
'GROWING SENSE OF GLOOM'
The opposition Labour Party accuses the coalition of choking
growth by doggedly sticking to its original austerity drive.
There are question marks over how effective the central bank
will be with its second round of quantitative easing to pump
money into the economy.
"The latest numbers add to a growing sense of gloom about
the health of the UK economy in the third quarter," said Chris
Williamson, chief economist at Markit. "There is a substantial
risk that the economy could fall back into contraction in the
The results from the BCC survey of more than 6,000 companies
mean the BCC is likely to revise down its growth forecasts for
2011 and 2012, the group's Chief Economist David Kern said.
"In September, my forecast was for 1.1 percent year-on-year
(growth) for 2011. On the basis of what I know now, the figure
would be 0.9 percent," Kern said.
The survey breakdown laid bare the risks facing the UK
The third quarter domestic manufacturing balance fell to +3
percent from +18 percent in the second quarter, the worst level
since the start of 2010. The balance for forward-looking home
manufacturing orders fell 13 points to -4 percent, the lowest
level since the fourth quarter of 2009.
In the services sector, the domestic sales balance fell to 0
percent in the third quarter, from +10 percent in the previous
quarter, the worst level since the end of 2009.
Separate official figures showed British manufacturing
output grew at its slowest pace for 18 months in the year to
August, dampening government hopes that exports will help to
kickstart the faltering economy.
A big monthly rise in output from the volatile oil and gas
sector lifted the broader industrial output measure, though it
did little to change the overall downward trend.
There was also a surprise pick-up in retail sales in
September, according to a survey by the British Retail
Consortium (BRC). The trade body said
like-for-like retail sales values were 0.3 percent higher
compared to September 2010, beating forecasts for a 1 percent
However, BRC Director General Stephen Robertson said that
spending growth was below inflation, meaning customers are
buying less than this time last year. "Underlying conditions
remained weak," he added.
Economists said the official data and surveys pointed to a
gloomy outlook, with consumer spending held back by squeezed
household finances and exporters facing strong headwinds.
"All in all, it seems increasingly likely that the
manufacturing and consumer sectors of the economy contracted in
the third quarter," said Samuel Tombs, of Capital Economics.
"As a result, the risks of a renewed recession in the wider
economy still appear to be growing."