News of continuing economic growth was tempered by sluggish growth in the service sector and rising raw material prices in manufacturing in the latest economic survey from the British Chamber of Commerce (BCC).
The survey, which collected data from over 5,600 businesses nationwide, revealed that 80% of manufacturing firms in the sector reported an increase in the cost of raw materials, adding “pressure to increase prices [which is] potentially a big issue bubbling under the surface,” according to the BCC’s general director David Frost.
80% of manufacturing firms in the sector reported an increase in the cost of raw materials
However, manufacturing home sales surged by 29 points in the second quarter to +30%, their highest level since the last quarter of 2007, while export sales increased 11 points to 31%, their highest level since the end of 2006, indicating that exporters are benefitting from a more competitive exchange rate. In comparison the service sector’s export balance saw only modest increases and remained weak compared to previous years.
Highlights from the survey are as follows:
- Manufacturing home sales rose 29 points to +30%
- Service home sales rose 6 points to +12%
- Employment in manufacturing increased by 35 points to +19%
- Employment in service increased by 1 point to +4%
- Employment expectations in manufacturing rose 16 points to +14%
- Employment expectations in service rose 3 points to +11%
- Cash flow for manufacturers improved by 10 points to +1%
- Cash flow for service sectors improved by 6 points but remains negative at -3%
Commenting on the results David Frost says: “On the whole these results are positive, especially in manufacturing, and they should offer encouragement that the UK’s recovery remains on the right track.
“We still have concerns about sluggish growth in the service sector, which emphasises why the Government must continue to promote the best possible business environment, in order to help companies invest and grow.”
Frost continues: “There will need to be an unwavering focus on ensuring business is able to deliver growth, create jobs, and drive a lasting recovery. Interest rates will have to stay low for longer, burdensome new employment red tape must be blocked, and we will have to generate growth across all regions of the country.”
David Kern, chief economist at the BCC, says: “The UK’s economic recovery is consolidating, and these results support the view that GDP growth strengthened in the second quarter of 2010. However, the recovery is fragile and is not yet secure.”
Kern adds: “Despite an improvement in manufacturing, the sector still faces serious risks. Given the sector’s poor long-term historical record, it is much too early to conclude that we are now seeing a sustainable manufacturing upturn.
“The service sector, which accounts for the bulk of GDP in the UK, is not recovering at an adequate pace and this heightens the threat of an economic setback.”
Kern suggests the cash flow data “indicates that many businesses are still facing serious financial difficulties [as] investment and confidence levels remain disappointing across all sectors.
He adds: “As the Government has now embarked on the vital task of curbing the UK’s unsustainable budget deficit, it is essential to create the right business conditions that will enable wealth creating companies to drive a lasting recovery – with a rebalanced economy focused on investment and exports at its heart.”
