News

October 14, 2011

"Tough choices must be made to avoid recession"

The Government will need to make some tough policy choices if the economy is to avoid going into another recession, the British Chambers of Commerce (BCC) has warned.

The business group's Quarterly Economic Survey, which questioned 6,700 businesses across the UK in the three months to September, highlighted a weakening in many key areas which indicate the nation’s economic health including exports and investment in plant and machinery.

The BCC has also downgraded its forecast for UK economic growth three times this year. It now expects the economy to expand by just 1.1 per cent in 2011, compared with the 1.9 per cent it predicted at the start of the year.

BCC director general John Longworth said: "A further recession could be avoided, but only if the Government made some tough policy choices.

"It's imperative that the Government perseveres with its deficit-cutting plan," he added. "We need a much greater focus on policies that will help businesses expand, take on more staff, export and invest."

BCC chief economist David Kern said the quarterly results pointed to deterioration in the UK's economy, with "concerning signs of stagnation".

He welcomed the recent increase in the Government’s quantitative easing programme to £275 billion, designed to inject more cash into the economy, but said that more radical measures were needed to fuel growth.

"These should be mainly concentrated on purchasing securitised SME loans and other private sector assets," he said. "Not raising interest rates until the end of next year would also help to underpin business confidence."

Other business groups have also broadly welcomed the decision to extend quantitative easing.

Graeme Leach, chief economist at the Institute of Directors, said that near zero GDP and poor money supply "made a compelling case" for the measure, while the Confederation of British Industry (CBI) said it would help "support confidence" among businesses.

"But we need to recognise that its impact on near term growth prospects is likely to be relatively modest," said CBI chief economic adviser Ian McCafferty. "Only once the turmoil in the euro zone is resolved will confidence be fully restored."

In a further indication of economic uncertainty, the latest unemployment figures from the Office of National Statistics (ONS) revealed that the jobless total rose to 2.57 million between June and August – a 17-year high. The national unemployment rate has now reached 8.1 per cent, according to the ONS.

• Businesses losing confidence in economic recovery