Business response to the latest economic figures
Business groups have reacted with disappointment to the latest #GDP growth figures.
The Office for National Statistics (ONS) has produced a preliminary figure of -0.5 per cent growth for the final three months of 2010, following a series of modest but upward quarters.
David Kern, the chief economist of the British Chambers of Commerce (BCC), said: “In spite of the disappointing GDP figures, the government must persevere with a credible strategy aimed at stabilising our public finances. British business supports the need for tough deficit-cutting measures over the next few years and supports the government’s focus on spending cuts rather than tax rises.
“However, this policy will only succeed if the austerity measures are supplemented by policies that enable businesses to deliver growth. The MPC must also play its part in supporting the recovery by maintaining very low interest rates for an extended period.”
Ian McCafferty, chief economist at the CBI, hoped that an improvement in the weather would offer some form of return to moderate growth in the early months of 2011.
But Mr McCafferty cast doubt on whether the figures are the herald of a double dip recession, pointing to the still relatively strong showing of the manufacturing sector.
He commented: “The magnitude of this preliminary estimate is a surprise, but much of the contraction appears to be the result of the very poor weather, which pulled output down sharply; construction, transport, retailing and leisure activities have all been affected.
“Although the manufacturing sector continued to grow strongly, this was not enough to make up for the declines in these other sectors, which account for nearly a third of the economy. The milder weather so far in early 2011 could mean that some of this lost activity will be made up in coming months, as happened last winter.
“It was always expected that underlying levels of activity would be sluggish through the winter and into the first half of 2011; export activity is starting to strengthen and business investment is picking up, but spending by both government and consumers is expected to weaken.
“On these data it is far too early to conclude that the UK economy faces a serious double dip, and it will be some months before the true picture of its underlying performance becomes clear.”
However, Jeegar Kakkad, senior economist at the manufacturers’ group, the EEF, warned that the surprise decline in output, the efforts of the UK’s manufacturers notwithstanding, placed ever greater emphasis on the need for a growth strategy.
He said: “While bad weather has had some impact the sharp fall in activity should serve as a stark warning that growth and the recovery cannot be taken for granted. Manufacturing remains the one bright spot on the landscape clouded with uncertainty but there are widespread challenges at home and abroad that could still dent growth this year.
“Although recoveries from financial crises are often rocky the unexpected decline in output will be of concern for policymakers and the pressure is now on government for a decisive outcome from its growth review.”
The winter freeze was just one factor in the unexpected drop in growth, according to the Forum of Private Business (FPB).
The business group pointed out that, even when the severe December weather was factored out, the UK registered only 0 per cent expansion in the last three months of 2010.
The FPB argued that slow progress on policies aimed at improving improve business finance – including addressing the lack of affordable lending from banks and tackling the £24 billion in late payments owed to small firms across the UK – are the real reasons the economy is contracting.
The FPB also believes tax rises, such as increased duty on fuel, which is set to go up again in April by 1p, and VAT are hitting both businesses and consumers in the pocket.
Alex Jackman, the FPB’s senior policy advisor, said:…