British economic activity slowed sharply in the third quarter, the British Chambers of Commerce (BCC) said yesterday, reiterating its call for the Bank of England to inject more stimulus to protect the recovery from budget spending cuts.
The BCC’s Quarterly Economic Survey showed a sharp deterioration in domestic demand for both services and manufacturing firms, and export demand also softened, indicating that growth weakened from a robust 1.2 percent expansion in the second quarter.
BCC chief economist David Kern said the slowdown in the services sector was particularly worrying, as it came even before the government launches austerity measures, which kick off with a rise in value-added tax (VAT) from January.
Recent economic data have been mixed, but broadly indicate that the recovery is tailing off. A small but growing minority of economists reckon the Bank of England will have to pump more money into the economy to keep growth on track.
Kern urged the bank to expand its quantitative easing program by ￡50 billion (US$79 billion) before the end of this year to prevent Britain sliding back into recession.
“We’re not saying ￡50 billion is a guarantee of success, but it’s nevertheless something which we feel should be done before the end of the year because what we do know is that the impact of the increase in VAT and the subsequent [budget] cut to dampen the economy.”
The BCC survey points to economic growth of just 0.5 percent between July and last month, less than half the rate of growth in the second quarter and suggests there is little scope for the private sector to fill the gap left by government cuts.
The domestic sales balance for the services sector fell to 4 from 12 in the second quarter and the orders balance slipped into negative territory at minus 4, the lowest since the end of last year when Britain was just emerging from an 18-month long recession.
Services firms’ employment expectations fell to their lowest in more than a year and manufacturers also expected the pace of recruitment to slow from a three-year high in the second quarter.
Nonetheless, manufacturers were their most confident about turnover over the next 12 months, with a balance of 49 percent of firms expecting an improvement — the highest in three years.
Services firms, by contrast, were much less optimistic, with the balances of confidence in turnover and profitability falling to their lowest since the second quarter of last year when Britain was still in the depths of recession.
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