Economy: UK on brink of recession as firms cut back

Economy: UK on brink of recession as firms cut back

The UK is in serious danger of heading into recession as the credit crunch tightens its hold over the economy, according to a survey of businesses across the country published today.

An increase in the number of firms reporting fewer orders, more job cuts and less investment is the latest indication that the British economy is suffering from the effects of the global credit crunch and the steep rise in the price of fuel, food and other raw materials.

Firms in the service sector have seen "alarming" declines in the last three months, with those reporting lower orders outnumbering those recording rises for the first time since 1990, the British Chambers of Commerce's latest quarterly economic survey of 5,000 companies says.

It adds that if these trends continue, the business sector is only three months away from technical recession.

Government figures yesterday showed manufacturing production in May dropped unexpectedly 0.5% from the previous month and was down 0.8% on this time last year. The wider measure of industrial production, which includes output from utilities and mining, posted an even bigger decline of 0.8% in May.

David Frost, head of the British Chambers of Commerce, said: "These results show a real risk of recession in the coming months. This is obviously deeply worrying, not just for business but for the consumer too, with both manufacturing and services reporting negative results.

"The temptation for the government.....continued below

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will be to raise business taxes in the next pre-budget report because the exchequer is running out of money. This would be a catastrophe."

Opposition parties used the survey to claim that the government had failed to deal with the impact of the credit crunch. Shadow chief secretary to the Treasury, Philip Hammond, said: "This distinctly downbeat survey will only add to British businesses' concerns about the economy. Instead of being supported in these difficult times, they are facing more tax hikes because Gordon Brown failed to fix the roof while the sun was shining."

The survey shows the bad news spread evenly across the country. Among service sector firms, only one region out of 12 - the West Midlands - saw more companies reporting higher orders rather than a decline. The worst-hit area was Scotland, with a balance of 18 percentage points showing falling orders.

Manufacturers fared little better, with firms in only four regions - Wales, Northern Ireland, the east and the north-east - recording higher orders on balance.

Manufacturers in London, the north-west, Yorkshire & Humber, East Midlands, Wales and Scotland also expect to shed jobs over the coming months.

The soaring cost of raw materials and fuel is causing companies to cut investment in plant and machinery. Manufacturers in five of the 12 regions are scaling back, with the sharpest declines in the south-east.

The BCC said the balance of manufacturers intending to raise prices hit an all-time high - 45 percentage points - for the third quarter in a row, with raw material increases also affecting the service sector.

The BCC's economic adviser, David Kern, said the survey shows a "menacing deterioration" in UK prospects. "The outlook is grim, and we believe that the correction period is likely to be longer and nastier than anticipated."