Poor economic growth in UK puts brakes on any recovery

Economic growth in the UK pulled back sharply in the fourth quarter of 2010 and the risks of a setback to any recovery remain serious in the year ahead, the British Chamber of Commerce said yesterday.

The BCC’s latest quarterly survey signalled gross domestic product growth slowing to around 0.4 per cent or 0.5 per cent in the final three months of last year.

This would be a marked slowdown on the 0.7 per cent recorded in the third quarter and comes after a “disturbing” recent performance from the services sector, compounded by last month’s Arctic conditions.

BCC chief economist David Kern said while the private sector was expected to be robust enough to withstand government spending cuts, the fourth-quarter performance in the service sector showed the threat still posed to recovery.

He said: “Unless reversed, weaknesses in services could have adverse consequences, particularly for jobs.

While we expect the private sector to prove sufficiently robust to withstand the impact of the tough deficit reduction programme, the UK recovery is fragile.

“Risks of a setback will be serious in the next few quarters.

“A new recession is unlikely, but the dangers cannot be shrugged off.”

The BCC survey of 5,600 responses across the business sector suggested the manufacturing industry was the star performer of the fourth quarter thanks largely to export sales.

Export orders and sales rose to their highest for 16 years and the second highest since the survey began.

Domestic sales were also strong for manufacturers but the results pointed to a fall in home orders for services firms.

The most recent Markit/CIPS Purchasing Managers’ Index data showed that the powerhouse services sector shrunk for the first time in 20 months during December.

The BCC said the services sector weakness was worrying, given that the impact of the VAT rise to 20 per cent had not yet been felt by firms, such as retailers.

It added that eurozone debt troubles are worrying manufacturers if they started to reduce export demand.