April 4, 2011 / 11:10 PM / 8 years ago

UK returned to expansion in Q1, slow growth ahead - BCC

LONDON (Reuters) - The economy edged back to growth in the first quarter after a surprise contraction late last year, although the recovery was fragile and manufacturers’ confidence in the outlook has fallen sharply, a survey showed.

The Chambers of Commerce, which represents companies employing one in six UK workers, said Tuesday’s survey highlighted the dangers that lie ahead for the UK economy at a time of public cuts, tax rises and high inflation.

BCC Chief Economist David Kern forecast a return to growth of between 0.6 and 0.7 percent in the first quarter after a 0.5 percent decline at the end of last year.

Growth will then ease to 0.3 percent in the second quarter, 0.4 percent in the third and 0.5 percent in the final three months of the year, the BCC said.

While the survey was disappointing, particularly for manufacturing, Kern said the results still showed a return to growth and underlined a strong recent performance by exporters.

December’s bad weather may have distorted the responses because the Q1 survey was conducted in February and March and the disruption was fresh in people’s memories, he added.

“The survey results show a fragile economy with some areas of strength, but sufficiently disappointing to take the view that the Bank of England should go easy on rates,” Kern told Reuters. “But I don’t want to overdo the gloom. The results still show growth. They don’t suggest a new recession.”

Faced with high inflation and an uncertain recovery, most economists expect the Bank to leave rates at a record low of 0.5 percent on Thursday as they await signs that the recovery is back on track.


Exports are likely to remain one of the bright spots of the recovery, helped by a pick-up in global demand and a weaker pound, the BCC said.

In the first quarter of this year, the services export orders balance reached its best level since the start of 2007. For manufacturers, the balance dipped to +26 from +39 in the previous quarter. Despite that fall, the BCC said the reading remained relatively high.

More worrying for the Bank of England was a rise in the balance of companies that expect to have to raise prices over the next three months.

The services price balance rose to +33 in Q1 from +28 in Q4, while the manufacturing price balance ticked up to +40 from +39. Both readings were the highest since the third quarter of 2008.

Manufacturers also reported sharp falls in confidence about their profitability and turnover for the next three months.

“The results show our economy faces a difficult year,” said BCC Director General David Frost. “The recovery will be consistently choppy.”

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