Britain’s business leaders have warned that the economic recovery is in danger of being built on another boom in credit card spending.
The warning from the British Chambers of Commerce (BCC) that the economy is too dependent on consumers followed the announcement of a new package of measures from the Treasury to boost exports.
The BCC said there was a need to rebalance the economy, and Chancellor George Osborne, speaking in Brazil, pledged that billions in extra lending will be made available to exporters.
In a speech in Rio de Janeiro, the Chancellor said banks will now have access to a Bank of England facility that will make it less risky for them to give loans to exporters.
Around £4 million of funding will also be used by UK Trade and Investment to support 3,000 companies to increase exports and £2m will go on expanding the organisation’s operations in Latin America and helping to secure contracts in £1.5 billion worth of infrastructure projects around Brazil. Osborne said his latest package would build on reforms announced in last month’s Budget.
“For decades we have not been exporting enough – not just to Brazil, but to all the fastest-growing markets in the world,” he said.
“So I am confronting that historic weakness head-on. In my Budget last month I fundamentally reformed our export regime. I am doubling the amount of government lending for exports and cutting the interest rates on that lending, by a third.
“I am clear: Britain will no longer have some of the least competitive export finance in Europe. We are going to have the most competitive export finance in Europe.”
In its latest poll of thousands of UK companies, the BCC notes that service exports are at an all-time high while many key manufacturing measures are also at record levels, showing that growth is strengthening in the short-term.
However, the survey also warns that the recovery must become more balanced as it is still too reliant on consumer spending – fuelled in a large part by credit cards and unsecured loans.
The report also highlights the lack of access to suitable channels of finance for expanding businesses. The BCC’s survey is significant due to its large sample and because it is the first major economic survey of the current quarter. It is closely studied by the Bank of England and the Treasury.
BCC director general John Longworth said: “Confidence is high and our members are determined to continue driving the recovery. We are brilliant at services and very successful at exporting our knowledge-based industries all over the world.
“But UK firms are ambitious, and more support is needed if we are to place the recovery on a sustainable, broader footing in the medium-term.”
He added: “We have witnessed many false dawns during the recovery, and external shocks still loom. Given that over the next year or so we face political change at home and abroad, long-term policies that support our businesses as they look to grow and invest are crucial.”
The survey also noted concern at a “significant” drop in the employment balance in the services sector.