The UK is now “at serious risk” of recession as falling orders and rising costs tighten the squeeze on business, the British Chambers of Commerce has warned.
Services firms saw “alarming” declines in the second quarter, with those reporting lower orders outnumbering those recording rises for the first time since 1990, its survey of almost 5,000 firms found.
However, the West Midlands bucked the trend – it was the only region out of 12 where more companies reported higher orders.
The BCC also warned the Government against hitting firms with taxes in an effort to boost revenues as the economic gloom grows.
Director-general David Frost said: “The temptation for the Government will be to raise business taxes because the exchequer is running out of money. This would be a catastrophe. To put more pressure on business would not only restrict growth and hit the consumer, it would further crush what our economy is based on – confidence.”
Confidence among services firms – which account for almost three-quarters of the economy – is at its lowest ebb since 1990, the survey added.
The BCC’s economic adviser David Kern said the survey showed a “menacing deterioration” in UK prospects. He added: “The outlook is grim, and we believe the correction period is likely to be longer and nastier than anticipated.”
Firms are facing soaring costs from rising electricity bills and raw materials as oil approaches $150 a barrel, while banks hit by the crunch clamp down on lending. This has put cashflow among firms under the most pressure since 1992, the BCC said.
But the survey revealed the dilemma faced by Bank of England policymakers attempting to keep a lid on inflation running more than one per cent above target thanks to surging oil, food and electricity costs.
This has limited the scope for interest rate cuts from the Bank’s Monetary Policy Committee (MPC) despite the worsening state of the economy.
The BCC said the balance of manufacturers intending to raise prices reached a new high – 45 per cent – for the third quarter in a row, with raw material increases hitting the services sector. This adds to inflation pressure.
Mr Kern added: “The MPC faces difficult choices. But immediate threats to growth are more alarming than higher inflation.
“A major recession can be avoided, but forceful measures are needed to improve confidence. The MPC must resist misguided calls for higher interest rates. Indeed, if wage pressures remain muted, the option of early interest rate cuts must be considered.”
The BCC survey adds to the mounting evidence of gloom over the UK economy flooding from surveys and official data. Last week the Chartered Institute of Purchasing and Supply (CIPS) warned of falling activity in services, manufacturing and construction.