Any attempt by the Government to squeeze business with new taxes to replenish the Exchequer’s dwindling funds would be a catastrophe for the country, a leading champion of small and medium sized companies has warned.
The call from David Frost, director general of the British Chambers of Commerce and previously head of the Coventry & Warwickshire Chamber, came after he warned there was a “real risk of recession in the coming months”.
David Kern, economic adviser to the British Chambers, also urged the Bank of England to be forceful and resist “misguided calls” for higher interest rates if recession was to be avoided.
Their clarion call came ahead of tomorrow’s meeting of the BoE’s Monetary Policy Committee which is widely expected to keep rates unchanged at five per cent for the third month in a row.
There was further gloom in the housing sector as housebuilder Persimmon announced it was shedding 1,100 jobs, the bulk of them - 280 - in the Midlands.
But the West Midlands showed it has so far escaped the worst of the malaise spreading through much of Britain’s recently booming service economy that prompted Mr Frost’s warning.
He said he had noticed a distinct adverse change of mood in the last three weeks, reflected in generally gloomy quarterly survey from the British Chambers.
But detailed findings from the West Midlands were, in several respects, resilient compared with those for Britain as a whole.
Peter Mathews, president of the Black Country Chamber, interpreted his organisation’s contributions to the British Chambers’ survey as “relatively positive”.
“What we don’t want to do is talk ourselves into a recession,” he said.
Manufacturers in the West Midlands and elsewhere are faring better than providers of services - helped by the weak pound which is boosting makes British exports to Europe.
However they, too, have lost the brimming confidence they expressed in March. In this case the change of mood is more marked among West Midlands industrialists than others, although more of them still plan to step up their investment in plant and machinery.
One adverse feature was that a small majority of West Midlands manufacturers said their cash flow had taken a turn for the worse.
“The credit crunch is starting to bite at the company level,” said Mr Kern. Until now, it had affected only financial organisations and companies connected one way or another with housing, commercial property and construction.
Generally, though, Mr Kern said the West Midlands was benefiting from a manufacturing base that was doing well in export markets, helped by the weakness of the pound against the euro, which makes British products attractive in continental Europe.
“We are not at the moment pressing for lower interest rates,” he added. “But it is important that there must not be any tax increases.
“An increase in (interest) rates at the present time would weaken further the banking sector and would endanger the smooth flow of finance to business.”
He added: “A major recession can still be avoided, but forceful measures are needed to improve confidence. The (Bank of England’s interest-setting) committee must resist misguided calls for higher interest rates.
“Indeed, if wage pressures remain muted, the option of early interest rate cuts must be considered.”
Mr Frost commented: “The temptation for the Government will be to raise business taxes in the next pre-Budget report (this autumn) because the Exchequer is running out of money.
“This would be a catastrophe.”
A marked feature of the British Chambers’ survey was an abrupt loss of confidence among people running service companies, down to levels last seen during the recession of the early 1990s.
West Midlanders, though, have held their nerves better than most. The number who expect to improve their profitability over the coming year has fallen sharply since March but remains well above the national average.
Nevertheless, Mr Frost’s warning about a recession badly unsettled the stock market where bank shares led another rout. At one stage the 100-share Footsie index had dropped more than 150 points to a level 20 per cent down from its last peak in October, a drop often seen as the definition of a bear market.
In the end the index recovered half the lost ground to finish with a 72-point loss at 5440.5.
At the same time, pointers from house prices and mortgage lending suggested the housing market may be steadying.
Government numbers showed West Midlands house prices trailing those in the rest of Great Britain in May, but still 1.2 per cent higher year on year. A 0.3 per cent fall between April and May reduced the national gain to 3.7 per cent.
