BCC confirms Recession Fears
The UK economy is already in recession and economic conditions are likely to get worse, the British Chambers of Commerce (BCC) has warned.
The BCC’s quarterly economic survey revealed that the economy was under immense pressure in the third quarter of this year, with many key national balances in negative territory, and a collapse in confidence across all business sectors. BCC economic adviser David Kern said:
“The alarming third quarter results point to worsening dangers of major economic downturn and rising unemployment. The results support the view that a UK recession has started and the downturn is getting worse.”
While most business groups welcomed the Bank of England’s decision to cut interest rates from 5% to 4.5 percentage points, the BCC said that further action was needed if a major recession was to be avoided.
“Lower interest rates should help boost confidence and make credit slightly cheaper in the short term, but the rate cut won’t transform the economic outlook overnight. While half a per cent is fine for now, we would like to see rates down to 4% over the next couple of months.
“Without exaggerating the gloom, the economy has moved into negative territory,” he added. “We have to hope that the Government has more resources at its disposal.”
Although Kern said there was no hard evidence that the SME sector was experiencing “major distress”, he did warn that small firms were among the most vulnerable.
“SMEs often face the most risk, particularly with the problems in the banking sector. If banks were to become extremely risk averse, they may be inclined to pull credit lines from small firms.”
However, the Institute of Chartered Accountants in England and Wales (ICAEW) head of SME issues, Clive Lewis, said it was misleading to say that the UK was already in recession — defined as two consecutive quarters of negative growth.
“Technically, we are not there yet. Businesses know that the climate isn’t going to improve in the short term but they remain focused on growth and profitability. Cutting interest rates does suggest that we are moving forward, and there are also some positive factors for SMEs such as lower fuel prices and the fact that commodity prices are starting to fall,”.
“Many are reporting that while they’ve been feeling the effects of the downturn, their competitors have been weakened too,” he added. “Clearly there is economic turbulence, but it is wrong to say that it is all doom and gloom for UK business owners.”
Read our article on dealing with the current economic downturn