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January 28, 2011

Negative growth not a sign of a double dip, says BCC

The UK economy’s first contraction in more than a year doesn’t mean we are heading for a double-dip recession, the British Chambers of Commerce (BCC) has said, writes Kate Horstead.

Recent Office for National Statistics (ONS) figures revealed that the UK economy shrank by 0.5 per cent in the three months to December 2010, after four successive quarters of growth. The ONS said that the snowy weather conditions at the end of 2010 were a key cause of the slump.

However, BCC economic adviser, Steve Hughes, said that even without the effect of the weather, economic growth would have been disappointing.

“It would still have been a flat growth rate well below expectation,” he said. “And that is before we factor in the challenges facing businesses in 2011, including the VAT increase and the deficit correction measures which are yet to really take hold.”

However, Hughes said that the significance of the negative growth would depend on its effect on consumer confidence. “It depends whether consumers were just delaying their spending during the bad weather, or if they have decided to reduce their spending altogether,” he added.

“It’s unlikely that there will be a double-dip recession,” he said. “Some sectors, such as manufacturing and exports, are still very positive, so we might see growth again soon.”

Business owner Amy Whitaker, founder of Pomegranate Boutique, said that small businesses will lose out if their customers rein in their spending.

“Consumers will feel the pinch and that will hit retail businesses,” she said. “When it comes to stock decisions, we have expensive and cheap options and so we have to make sure those cheap choices still meet a certain standard and that everything is at a price that people will pay. A lot of the retailers I know are worried.”

Analysts said that the GDP figures were likely to deter the Bank of England from raising interest rates in the near future.

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