UK-Not Out of the Woods

A Reuters report on the British economy circa June 2009.

A survey by the British Chambers of Commerce suggested today (July 7)that there is a marked easing in the pace of decline in the manufacturing and services sectors in the second quarter. The economy however,continues to be in recession.

The BCC’s quarterly economic survey of more than 5,600 businesses showed sales and orders continued to fall in the three months to June, though at a much slower pace than the record rates of contraction in April’s first-quarter survey.

In contrast to other surveys, it still suggests the economy continued to contract in the second quarter, and will reinforce expectations the Bank of England will expand its quantitative easing scheme at its policy meeting this week.

BCC chief economic adviser David Kern said the figures were consistent with the economy having shrunk by 0.1-0.4 per cent in the second quarter, better than the 2.4 per cent drop in the first quarter, and he does not expect a return to growth until the end of this year.

“The worst of the recession appears to be over but a recovery is not guaranteed and even if we get one, it will be a very shallow recovery by historical standards,” Kern said.

The Bank has taken unprecedented measures to drag Britain out of recession, slashing interest rates to close to zero and embarking on a 125 billion pound asset purchase programme to pump money into the economy.

Most analysts reckon the Bank will extend the scheme to the £150 billion (RM855 billion) limit sanctioned by the government either this month or next. Kern said policy must remain loose to allow a recovery to take hold, noting measures so far had yet to impact.

Rate-setters seem in little hurry to start unwinding the massive stimulus they have injected into the economy and are worried that tight lending conditions will derail any pick-up.

Still, there was a glimmer of hope in the BCC survey, which showed confidence in service sector turnover and profitability had returned for the first time in about a year, while manufacturers were also upbeat about the prospects for turnover.

However, firms were still operating well below full capacity and manufacturing firms’ cash-flow continued to be weak.

George Buckley, chief UK economist at Deutsche Bank, said conflicting survey evidence made it hard to tell what state the economy is in. “There are some encouraging signs we’re seeing the bottom of the recession but the real question is what the post-recession environment looks like: at the moment it doesn’t look very promising,” Buckley said.

The aye-sayers and the nay-sayers can predict what they want but until such time green shoots moved up the economy to positive teritory, the feeling continues to be worrisome.