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The recently published (Q2) Quarterly Economic Survey received a record response with nearly 5000 businesses – large and small taking part. An analysis of the survey reveals that the effects of the credit crunch and rising fuel costs have filtered through to business production.

All confidence balances fell sharply in both manufacturing and services. Surprisingly the service sector was the hardest hit, seeing the greatest declines overall. Home sales and orders and employment expectations are at their lowest level since the recession of the early nineties figures reveal.

David Frost, Director General of the British Chambers of Commerce, said: “This is obviously deeply worrying, not just for business but for the consumer too, with both manufacturing and services reporting negative results.”

Frost also went on to say that any move by the Government to raise taxes to buffer an exchequer that is running out of money would be “catastrophic.” He believes that any move to put more pressure on business would restrict growth and this would be passed on to the consumer. Frost also emphasised that it is confidence that the economy is based on.

Any prospects for a short term recovery were put aside by David Kern, Economic Adviser to the British Chambers of Commerce. He predicts a grim outlook for at least the next two quarters. “Intention to raise prices remains high, rising to a new peak in manufacturing and easing only slightly in services. Businesses are in a lose-lose situation. Falling demand and the squeeze on consumer disposable incomes will limit how far prices can be increased.”

A solution suggested by Kern is the Monetary Policy Committee (MPC) resisting calls to raise interest rates. This will open credit channels to the economy, but raises risking inflation to unacceptably high levels, something the MPC is equally keen to avoid. Kern calls on the government to resist new taxes and regulations to boost confidence.  

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Related links

• British Chamber of Commerce