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Wed, Jul 07, 2010 - Page 10 News List

UK to see strong growth in second quarter: survey

REUTERS , LONDON

Britain’s service sector enjoyed its strongest growth for two years over the past three months and manufacturing grew strongly, but tougher times may be ahead as firms are gloomier about the future, a survey suggested yesterday.

The British Chambers of Commerce’s Quarterly Economic Survey showed the private-sector recovery gathering pace. The business lobby’s chief economist David Kern said the survey pointed to economic growth of 0.6 percent to 0.7 percent in the second quarter, around double the rate earlier this year.

However, he warned that this growth was unlikely to be sustained, as an impending clampdown on government spending risked plunging the economy back into recession.

“Although we’re champions of manufacturing, it’s a worry for the whole economy that services are not strong,” Kern said, pointing out that private-sector services activity was still half its long-run average, despite the recent pick-up. “We now have in place very tight fiscal policy for the next few years. We think it’s necessary, but this means the risk of a double-dip recession is greater and makes it more necessary for the Bank of England to keep interest rates low.”

The new Conservative-Liberal Democrat coalition is planning spending cuts of about 25 percent across government departments to slash a deficit running close to 11 percent of economic output.

“This year we won’t see much impact from the fiscal tightening because the stock cycle is strong and earlier fiscal stimulus is still in place,” Kern said. “But I think the biggest impact on the economy and jobs will come late this year and next year.”

The survey also showed that the long-awaited boost to exports from a past fall in the pound seemed to have materialized, with the manufacturing export sales balance at its highest in almost four years.

“It’s critical at this point of the cycle to keep rates as low as possible for as long as possible,” Kern said. “Fiscal policy will inevitably increase the deflationary factors in the economy.”

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