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Friday 26th of September 2008
July 8, 2008

Britain facing serious risk of recession

by Kay Murchie

The British Chambers of Commerce’s (BCC) quarterly report has suggested that a recession in Britain is looming with the credit crunch and soaring costs denting the most important sectors of the economy.

The BCC said that activity in the UK services sector (which makes up for 75% of the UK’s economy) had slumped to levels not experienced since the recession in the early 1990s.

Businesses in the manufacturing and services sector said domestic sales and orders had fallen during the last 3 months, while companies are experiencing cash-flow problems.

Economic adviser, David Kern, said the survey revealed a ’menacing deterioration‘ in the outlook for the UK and said a recession is looming.

Mr Kern added that prospects are grim and it is widely believed that the correction period is likely to be longer and harsher than anticipated.

Some economists believe the chances of a recession in the UK are now 50:50.

The news from the BCC, which surveyed 5,000 small, medium and large businesses, comes as shares are declining in banks, housebuilders and retailers.

Shares in Bradford & Bingley have lost a further 20% this morning amid fears about its fundraising plans.

In addition, the bad news continues in the housebuilding industry with Persimmon announcing job losses. The company said home completions had plummeted by 31% and revenue fell by 34% in the first half of this year.

In the meantime, Marks and Spencer sent shockwaves throughout the retail sector last week when it announced a surprise downturn in sales.

Concerns about the economy also sent overseas shares plummeting. Hong Kong’s Hang Seng Index was down 3.4% at the end of its morning session, while Japan’s Nikkei 225 Index lost 290.16 points to 13,069.88 after traders responded to a cautious economic outlook from the US Federal Reserve.

It is widely believed that the Dow Jones will lose 100 points when it commences trading in New York this afternoon.

Yesterday, it was revealed that manufacturing production fell in May also triggering fears that the UK economy is sliding into recession.

The figures were much worse than anticipated as output fell by 0.5% during the month, while the wider measure of industrial production, including energy and water output, dropped 0.8%.

The figures will put pressure on the Bank of England’s Monetary Policy Committee to cut interest rates this week.

Last month, it was widely believed by analysts that interest rates would have to rise in order to curb inflation.

However, it is believed by many that the nine-member committee will vote three ways, with one third voting for a cut, one third voting for a rise while the other voting for no change.

Steve Radley, chief economist at the Engineering Employers’ Federation, said interest rates should be kept at 5%. The slowing economy and wage moderation should help to prevent inflation.

However, if the current economic climate continues to gather pace, the Monetary Policy Committee must be prepared slash rates again, concluded Mr Radley.

Since December, the Bank of England have cut interest rates 3 times.

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