The British Chambers of Commerce Q2 Quarterly Economic Survey of 4,300 business shows that British business is proving resilient in the face of persistent interest rate increases since last August.  However, there is not uniformity across business.  The Manufacturing sector shows a major improvement in balances whilst the service sector conveys a mixed performance.

The manufacturing sector recorded stronger Q2 balances in virtually all areas. We welcome the positive Q2 manufacturing results, but we think they do not reflect adequately the serious pressures facing the sector.

The service sector’s Q2 results are mixed. It is disappointing that service export balances recorded large Q2 declines, and the investment balances also weakened slightly. But service sector performance is adequate overall, with stronger employment and employment expectations balances.

Intentions to raise prices show very small net changes in Q2: up marginally for manufacturing, and down slightly for services. But the pricing balances are well below recent peaks in both sectors. We believe that perceptions of business pricing power are greatly exaggerated.

David Kern, Economic Adviser to the British Chambers of Commerce, said:

“Given the resilience signalled by these results we are concerned that they could reinforce the pressures for further interest rate increases. Such a reaction however would be unjustified.  Labour costs remain under control and the Q2 QES shows falls in the capacity utilisation balances. Although growth is robust, there is no evidence that the UK economy is overheating. 

The prospect of relentless monetary tightening is very worrying for our members. The expected slowdown in UK economic activity may commence later than previously envisaged,  but there is a distinct risk that the slowdown would be very sharp and painful.”