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Economy growing but concerns remain

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The UK economy continued to grow in the second quarter of the year, but the recovery is still fragile, a new report has revealed.

The latest economic survey from the British Chambers of Commerce (BCC) collected data from over 5,000 firms across the country.

Analysis of the figures prompted the BCC to predict a growth rate of between 0.6 per cent and 0.7 per cent for the three months to the end of June.

In both the manufacturing and services sectors, such key indicators as employment expectations, investment plans, export orders and domestic sales all made gains in the second quarter of the year.

But the BCC warned that underlying weaknesses in the economy remain.

In particular, the business group highlighted sluggish growth in the service sector as a serious problem.

Another issue of concern was the number of manufacturers (around 80 per cent) that are experiencing rises the cost of raw materials, adding to price pressures.

On the plus side, manufacturing export sales were at their highest for nearly four years, the result of a more competitive exchange rate.

Manufacturing home sales also surged, up by 29 points to +30 per cent, a level not seen since the last quarter of 2007.

One effect of which was that manufacturing employment registered a big improvement, rising 35 points to +19 per cent.

Manufacturing employment expectations also increased by 16 points, to +14 per cent.

Commenting on the results, David Frost, director general of the BCC, said: “On the whole these results are positive, especially in manufacturing, and they should offer encouragement that the UK’s recovery remains on the right track.

“We still have concerns about sluggish growth in the service sector, which emphasises why the government must continue to promote the best possible business environment, in order to help companies invest and grow. Furthermore, with around 80 per cent of manufacturers reporting that they are under pressure to increase prices, there is potentially a big issue bubbling under the surface.”

Mr Frost added that, with very austere times ahead, no one should believe that the UK’s economic recovery is totally secure. He said that interest rates will have to stay low for longer and that burdensome new employment red tape must be blocked.

David Kern, the BCC’s chief economist, remarked that the UK’s economic recovery is consolidating but that the recovery is vulnerable.

He highlighted both the dangers faced by manufacturing and the subdued growth of the services sector: “Despite an improvement in manufacturing, the sector still faces serious risks. Given the sector’s poor long-term historical record, it is much too early to conclude that we are now seeing a sustainable manufacturing upturn. The service sector, which accounts for the bulk of GDP in the UK, is not recovering at an adequate pace and this heightens the threat of an economic setback.”

With many of the factors driving growth this year, mainly stock building and the continued effects of the policy stimulus, only temporary, Mr Kern emphasised that the threat of a relapse remains serious.

He concluded: “As the government has now embarked on the vital task of curbing the UK’s unsustainable budget deficit, it is essential to create the right business conditions that will enable wealth creating companies to drive a lasting recovery – with a rebalanced economy focused on investment and exports at its heart.”