Confidence dip sparks fears over recovery

Published on Monday 4 April 2011 15:28

Serious doubts over the strength of Britain's manufacturing renaissance have surfaced after one of the biggest surveys of its kind highlighted a "worrying" outlook for thousands of businesses.

Today's quarterly economic report from the British Chambers of Commerce (BCC) will fuel concerns that a resurgent industrial sector faces a summer of cash-flow and pricing pressures.

Some 80 per cent of manufacturing companies warned that soaring raw material costs have intensified the pressure to raise prices, stoking inflation fears.

According to the BCC, manufacturers' confidence in improving sales and profits over the coming months has fallen to levels not seen since the second quarter of 2009, when the economy was in the grip of recession.

The survey is based on the responses from 6,000 businesses across the UK and also paints a "mixed" picture for the powerhouse services industry.

The health of those companies was due to come into sharp focus later today with the release of the latest purchasing managers' index (PMI) for the services sector, which accounts for almost three-quarters of the economy.

BCC director-general David Frost said: "The results of the quarterly economic survey show our economy faces a difficult year and that the recovery will be choppy.

Exporting activity remains strong, but there have been sharp declines in confidence, and cash-flow is still a real concern for businesses."

Commenting ahead of the Scottish Chambers of Commerce's (SCC) own quarterly business survey, SCC chief executive Liz Cameron said: "From a Scottish perspective, this survey reveals that our manufacturing businesses are continuing to do well against a challenging economic backdrop.

"Our service sector appears less buoyant, indicating that consumer demand is still subdued."

The BCC said the overall economy was likely to have returned to growth in Q1 after severe weather conditions in December had a negative impact on GDP in the closing quarter of 2010.

Chief economist David Kern argued that manufacturing still had "the potential to drive the UK recovery", despite the sector accounting for only about an eighth of total economic output.

But he noted that the international backdrop had become "riskier", while government austerity measures would "intensify pressures on businesses and consumers".

The survey revealed that businesses were facing "real difficulties" in managing cash-flow, with the related measures for both manufacturing and services turning negative in the quarter.

Rising input costs meant that more manufacturers were now looking to push up prices.

The findings largely chime with last week's PMI snapshot on manufacturing.

It found that the sector continued to expand in March, but at a weaker-than-expected pace while firms ramped up prices at a record rate. Analysts suggested that manufacturing activity may have peaked. Frost added: "While the government has listened to calls to help the private sector create growth, there is more to be done in giving businesses greater confidence, and encouraging them to export, invest and create more jobs.

"As the public sector cuts start to bite, the government must get the detail right on the measures announced in the Budget to generate economic growth by helping businesses thrive."