There are serious risks that a recession is looming for the UK business community, the British Chambers of Commerce (BCC) has warned.
The BCC's latest quarterly economic survey, which took in almost 5,000 businesses, found that there has been a significant rise in the number of firms experiencing a drop in orders, job losses and a decline in investment.
The data suggest that the credit crunch and soaring fuel and raw material costs are having an adverse effect on British firms.
In particular, the proportion of firms in the service sector reporting a fall in orders has outstripped those recording a rise for the first time since 1990.
Given historically low levels in both the service and manufacturing sectors, the BCC said that, where it is defined by two successive quarters of negative growth, UK business is only three months away from recession.
Specifically, the survey revealed that cashflow is in negative territory and at record lows, and that all confidence balances have fallen sharply in both manufacturing and services.
David Frost, the director general of the BCC, said: "These results show a real risk of recession in the coming months. This is obviously deeply worrying, not just for business but for the consumer too, with both manufacturing and services reporting negative results. The temptation for the government will be to raise business taxes in the next pre-Budget Report because the exchequer is running out of money. This would be a catastrophe.
"I am sending Alistair Darling and Gordon Brown a strong message from the businesses I meet every day up and down the country: to put more pressure on business would not only restrict growth and hit the consumer hard, it would further crush what our economy is based on - confidence."
David Kern, economic adviser to the BCC, commented: "Some key results, mostly in services, are at historically low levels not seen since the recession of the early 1990s. The threats facing the economy will be exacerbated by plunging confidence across both sectors. Overall, the results point to growing risks of outright falls in UK output in at least one or two quarters.
"Intention to raise prices remains high, rising to a new peak in manufacturing and easing only slightly in services. Businesses are in a lose-lose situation. Falling demand and the squeeze on consumer disposable incomes will limit how far prices can be increased."
Mr Kern added: "A major recession can still be avoided, but forceful measures are needed to improve confidence. The [Bank of England] must resist misguided calls for higher interest rates. Indeed, if wage pressures remain muted, the option of early interest rate cuts must be considered. On its part, the government must alleviate acute business concerns over new taxes and regulations, and must stand ready to support vulnerable small businesses."
Date:8 July 2008
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