BCC warns UK heading for recession … but SCC says Scotland may avoid it

Published on Sunday 17 August 2008 21:14

THE British Chambers of Commerce has become the first major business body to claim that Britain is heading for a technical recession over the next year.

But its Scottish counterpart has responded by saying that a recession north of the Border was "not inevitable". The Scottish Chambers of Commerce said that Scotland looked set to escape a severe economic slowdown.

The BCC said in its quarterly economic forecast, to be published today, that it believed the UK was set to suffer at least two consecutive quarters of negative growth in the next six to nine months.

It said that the longer the Bank of England's monetary policy committee (MPC) waits before cutting rates, the bigger the danger that the economic situation will deteriorate and policy choices will become more difficult and unpleasant.

David Kern, economic adviser to the BCC, said: "Our quarterly economic forecast highlights a significant worsening in UK economic prospects. There is now a distinct possibility of technical recession." He added: "A marked slowdown in UK activity is highly likely over the next 18 months, even if interest rates are cut in line with our central forecast.

"But, if the MPC decides not to cut rates in the next three to six months, growth prospects would be worse than in our central scenario."

However, the organisation's Scottish arm, the Scottish Chamber of Commerce, said Scotland was not struggling with some of the same economic problems as the rest of the UK.

Liz Cameron, chief executive of the SCC, said Scotland's high level of employment and the continued increase in manufacturing exports meant it would escape the economic hit suffered by the rest of the UK.

She said: "We have equalled or exceeded UK growth rates in each of the last three quarters. Whilst no-one is pretending everything is rosy, we do not feel that Scotland is inevitably heading for recession. We do, however, concur with the conclusions of the BCC statement that interest rates should come down.

"The traditional mechanism of raising the cost of money to curb inflation is not going to achieve that goal at this time – in fact it might just fuel inflation as the pressures that are causing price rises will not be alleviated by greater interest rates, being escalating commodity prices in the face of burgeoning world demand and the squeeze on credit."

She added: "The last thing we need right now is any other pressure slowing the economy."

The BCC report said it did not expect the UK to hit a deep recession, such as was suffered in the late 1990s, but said that the risks to the economy had grown significantly over the past quarter and unemployment was set to climb by up to 300,000.